Bitcoin Extends Decline After Biggest Slump Since Pandemic Hit
Bitcoin and other digital coins steadied Friday after posting some of the biggest declines since the onset of the pandemic
(Bloomberg) -- Bitcoin and many of its major peers slumped on Friday in the wake of some of the biggest declines since the onset of the pandemic, a selloff that has stirred fresh doubt about this year’s craze for cryptocurrencies.
The most-traded digital coin slid 3.1% to $16,522.61 at 11:05 a.m. in New York. The Bloomberg Galaxy Crypto Index extended a two-day plunge to about 19% -- its biggest since mid-March. The rout was kicked off by worries over the prospect of tighter crypto rules in the U.S. and profit-taking after a big rally, investors said. Even with the slump, Bitcoin has more than doubled this year -- an advance that has split opinion.
Crypto believers tout a broadening investor base and the search for a hedge against dollar weakness as reasons for a durable boom. Critics point to a history of big swings, including a spectacular boom and bust three years ago.
“We will see some choppy water in the short term as the market finds new levels before attempting another assault on the all-time high” said crypto analyst Jason Dean at Quantum Economics. “The pullback so far would not concern experienced Bitcoin traders or holders to any significant degree.”
Proponents of digital assets say the current focus on cryptocurrencies compared with 2017 is different because of growing institutional interest, for instance from the likes of Fidelity Investments and JPMorgan Chase & Co. Just this week, Van Eck Associates Corp. launched a Bitcoin exchange-traded note on the Deutsche Boerse Xetra exchange. In October, PayPal Holdings Inc. said it would allow customers access to cryptocurrencies.
FOMO
“After big rallies in shares and various other assets, they are all vulnerable to a bit of a pause,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney. “Bitcoin more than most, as it surged higher far more and had become far more frothy with speculative interest.”
Others see signs of retail investors piling in to chase momentum for fast gains, storing up an inevitable reckoning. The rout in Bitcoin began just hours after it rose to within $7 of its record high of $19,511 set in December 2017.
Profit-taking was inevitable and there are still factors in favor of Bitcoin as an asset class, according to Byron Goldberg in Sydney, who runs the Australian operations for Luno, the cryptocurrency exchange and trading platform.
“It continues to attract both institutional and retail attention as a 21st-century substitute to the gold play,” he said.
Crypto ‘Whales’
A few large holders often referred to as whales own most Bitcoin. About 2% of the anonymous ownership accounts that can be tracked on the cryptocurrency’s blockchain control 95% of the digital asset, according to researcher Flipside Crypto. That structure points to the risk of big price swings if major investors offload some of their stakes.
“Bitcoin may be a victim of its own success,” said Michael McCarthy, chief market strategist at CMC Markets Plc in Sydney. “Traders suggested several large holders moved to lock in gains as the cryptocurrency reached for all-time highs.”
AMP Capital’s Oliver said the depth of the recent plunge shows Bitcoin is “hardly a secure store of value,” adding it may be vulnerable if Covid-19 vaccines lead to a sharp global recovery next year.
“Money printing and the debasement of paper currencies that Bitcoin enthusiasts are seeking to protect against may start to fade as an issue,” Oliver said.
©2020 Bloomberg L.P.