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LONDON (Reuters) – Bitcoin plunged to its lowest level in 10 days on Thursday, holding back its dizzying rally and sparking a sell-off among smaller digital currencies.
Bitcoin, the world’s largest cryptocurrency, has dropped 13% to its lowest since November 16. The latest drop was 9% to $ 17,074, a sharp correction from its three-year high of $ 19,521 reached Wednesday.
It has rallied around 140% this year to just short of its all-time high of $ 19,666, fueled by demand for riskier assets, a perception that it is inflation resistant and expectations that cryptocurrencies will win mainstream acceptance. .
The second largest cryptocurrency, Ethereum, fell by around 13% and XRP, the third largest, slipped by more than 20%. Both coins, which tend to move in tandem with bitcoin, hit multi-year highs earlier this week.
Bitcoin’s 12-year history has been studded with soaring gains and equally steep declines. Its volatility has hampered the use of payments and made many large investors wary.
Advocates hoped that a more mature market and fewer retail investors in 2020 reduced the chances of the kind of collapse that followed the 2017 bubble.
Image: Bitcoin rally stutters – https://fingfx.thomsonreuters.com/gfx/mkt/jbyvredampe/bitcoin.PNG
Traders cited the unwinding of highly indebted positions accumulated as bitcoin neared its record for the drop, as did tweets from the CEO of major cryptocurrency exchange Coinbase expressing concern over rumors of a regulatory crackdown.
“There has certainly been a sense of euphoria in the markets over the past couple of days,” said Joseph Edwards of crypto brokerage Enigma Securities. “This seems primarily a reaction to that: over-indebted markets have taken a small hit and suffered immensely.”
Since 2017, a functioning cryptocurrency derivatives market has developed, with offshore exchanges offering highly leveraged positions. In times of low liquidity, movements in such markets can have a huge effect on the price of bitcoin.
Others cited concerns related to speculation by market participants of tighter U.S. regulation on how individual investors store cryptocurrencies.
Brian Armstrong, CEO of California-based Coinbase, tweeted https://twitter.com/brian_armstrong/status/1331744884856741888 on Tuesday he was worried about rumors that the US would crack down on individual cryptocurrency wallets.
The US Treasury Department did not immediately respond to a request for comment sent outside business hours.
Bitcoin has reacted sharply in the past to regulatory crackdowns by US authorities.
Last month, US prosecutors filed criminal charges accusing four founders and executives of BitMEX crypto derivatives exchanges of circumventing rules designed to stop money laundering.
(Reporting by Tom Wilson; Additional reporting by Alun John in Hong Kong and the Tokyo Markets team; Editing by Mark Potter and Pravin Char)
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