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Bitcoin plunged into a sell-off Thursday that saw other digital assets drop by more than 20%, a slide that is likely to fuel speculation about the duration of the latest cryptocurrency boom.
The largest token fell as much as 14% in trading on Thursday, heading for one of its worst days since the pandemic-induced liquidation in March.
The rout began just hours after Bitcoin rose less than $ 7 from its record high of $ 19,511, the culmination of a more than 250% rise in the past nine months. Fears of tighter cryptocurrency regulation and profit taking after a frenzied rally were among the reasons cited for the sudden drop.
Sales spiked late Wednesday after Coinbase Inc. CEO Brian Armstrong tweeted speculation that the US is considering new rules that would undermine anonymity in digital transactions.
“The news that the Trump administration could crack down on cryptocurrencies may have been a trigger for the decline,” said Antoni Trenchev, managing partner of Nexo in London, which bills itself as the largest digital coin lender in the world. “But any asset that rises 75% in 2 months and 260% from March lows can undergo a correction.”
Other coins, including XRP, have fallen as much as 27%, according to prices compiled by Bloomberg.
After gaining more support from Wall Street fund managers and fund providers, the cryptocurrency rally seemed overheated. The ferocious retreat could spark yet another debate over their value in portfolio diversification.
“Conditions are extremely overbought and are set for a correction,” said Vijay Ayyar, head of business development with cryptocurrency exchange Luno in Singapore. “So I don’t think it’s unusual.”
Advocates of cryptocurrencies advertise purchases by retail investors, institutions, and even billionaires, as well as seeking hedging against dollar weakness amid the pandemic, as reasons why the boom can last.
Skeptics argue that cryptocurrency’s notorious volatility portends a repeat of what happened three years ago when a bubble burst spectacularly. Some see signs of retail investors piling up to chase the momentum for quick earnings, amassing an inevitable showdown.
Concern about potential US crypto rules helps explain Thursday’s price drop in most major digital assets, said Ryan Rabaglia, global head of trading at Hong Kong’s OSL brokerage.
“It is also not unusual to see a short-term pullback after periods of significant and accelerating gains as traders try to take profits before resetting once volatility subsides,” he said. “Once the dust has settled, we will get back to business as usual with all medium and long term bullish indicators still in play.”
Proponents of digital assets say the current focus on cryptocurrencies compared to three years ago is different due to growing institutional interest, for example from Fidelity Investments and JPMorgan Chase & Co.
Just this week, Van Eck Associates Corp. launched a publicly traded Bitcoin note on the Deutsche Boerse Xetra exchange. In October, PayPal Holdings Inc. said it would allow its customers access to cryptocurrencies.
There is also a buzz around Ethereum, the most widely used blockchain in the world, which is set for a network upgrade that would allow it to process a similar number of transactions as Mastercard Inc. and Visa Inc. The move to the new system could hold back. the total supply of Ether, the price of which has quadrupled so far this year.
Ayyar di Luno said he expects Bitcoin to stabilize and reach all-time highs. But that would be followed by a bigger drop in cryptocurrency, he said.
Soravis Srinawakoon, chief executive of Bangkok-based Band Protocol, said the dip in cryptography is healthy.
“This is just a normal withdrawal after seven straight weeks of Bitcoin in the green, due to a lot of people over-exploiting.”
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