Currency

Bitcoin dives as red-hot rally hits the buffers

Updated : November 26, 2020 06:39 PM IST

Bitcoin has reacted sharply in the past to regulatory clampdowns by American authorities.

Bitcoin plunged on Thursday to its lowest level in 10 days, slamming the brakes on its blistering rally and sparking a sell-off among smaller digital coins.

Bitcoin, the world's biggest cryptocurrency, slumped as much as 13 percent to its lowest since Nov. 16. It was last down 9 percent at $17,074, a sharp correction from its three-year high of $19,521 hit on Wednesday.

It has rallied around 140 percent this year to just shy of its all-time high of $19,666, fuelled by demand for riskier assets, a perception it is resistant to inflation, and expectations cryptocurrencies will win mainstream acceptance.

The second-largest cryptocurrency, ethereum, dropped around 13 percent and XRP, the third-biggest, slid over 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 peppered with vertiginous gains and equally sharp drops. It volatility has hampered use for payments and made many larger investors wary.

Backers hoped than in 2020 a more mature market and fewer retail investors have lowered the chances of the kind of crash that followed its 2017 bubble.

Traders cited for the drop the unwinding of highly leveraged positions built up as bitcoin approached its record, as well as tweets by the CEO of major cryptocurrency exchange Coinbase expressing concern at rumours of a regulatory crackdown.

"There's definitely been a sense of euphoria in markets over the last couple of days," said Joseph Edwards of crypto brokerage Enigma Securities. "This mostly feels like a reaction to that - over-leveraged markets took one small hit and suffered immensely."

A functioning cryptocurrency derivatives market has developed since 2017, with offshore exchanges offering highly leveraged positions. In times of thin liquidity, moves in such markets can have an outsize effect on bitcoin's price.

Others cited worries surrounding speculation from market players of tighter U.S. regulation of how individual investors store cryptocurrencies.

Brian Armstrong, CEO of California-based Coinbase, tweeted, on Tuesday he was worried by rumours the United States would clampdown on individual cryptocurrency wallets.

Last week we heard rumors that the U.S. Treasury and Secretary Mnuchin were planning to rush out some new regulation regarding self-hosted crypto wallets before the end of his term. I'm concerned that this would have unintended side effects, and wanted to share those concerns.
— Brian Armstrong (@brian_armstrong) November 25, 2020

The U.S. Treasury Department did not immediately reply to a request for comment sent outside business hours.

Bitcoin has reacted sharply in the past to regulatory clampdowns by American authorities.

Last month, U.S. prosecutors filed criminal charges accusing four founders and executives of crypto derivatives exchanges BitMEX of evading rules designed to stop money laundering.

Bitcoin dives as red-hot rally hits the buffers

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