(Bloomberg) – Bitcoin plunged into a sell-off on Thursday that saw other digital assets drop as much as 27%, a drop likely to fuel speculation about the sustainability of the latest cryptocurrency boom.
The biggest token fell more than 8% in Thursday’s trading after falling 13%, heading for one of its worst days since the pandemic-triggered liquidation in March.
The rout began just hours after Bitcoin fell below $ 7 from its record high of $ 19,511, the culmination of an increase of over 250% in the past nine months. Fears of tighter crypto regulation and profit taking after a frantic rally were among the reasons given for the sudden drop.
The sale accelerated on Wednesday after Coinbase Inc. CEO Brian Armstrong tweeted about speculation that the United States is considering new rules that undermine anonymity in digital transactions.
“The announcement that the Trump administration could crack down on crypto may have been a trigger for the decline,” said Antoni Trenchev, managing partner of Nexo in London, which touts itself as the world’s largest digital coin lender. “But any asset that rebounds 75% in 2 months and 260% from March lows is allowed to undergo a correction.”
Other coins, including XRP, fell 27%, according to prices compiled by Bloomberg.
After garnering more support from fund managers and fund providers on Wall Street, the cryptocurrency rally appeared to be overheated. The fierce pullback could spark another debate about their value in diversifying portfolios.
“The terms are very massively overbought and doomed to a correction,” said Vijay Ayyar, business development manager at Crypto Exchange Luno in Singapore. “So I don’t think that’s unusual.”
Crypto enthusiasts are touting purchases by retail investors, institutions, and even billionaires, as well as seeking hedge against the weak dollar amid the pandemic, as reasons the boom may last.
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Skeptics say cryptocurrency’s famous volatility portends a repeat of what happened three years ago when a bubble burst dramatically. Some are seeing signs of retail investors stacking up to continue the momentum towards quick wins, racking up an inevitable calculation.
Concerns about potential US crypto rules help explain Thursday’s price drop for most major digital assets, said Ryan Rabaglia, global head of trading at OSL brokerage in Hong Kong.
“It is also not unusual to see a short-term pullback after periods of large and accelerating gains as traders look to take profits before resetting once volatility subsides,” he said. he declares. “Once the dust settles, we go back to business as usual with all the 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 .
This week again, 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.
There is also a buzz around Ethereum, the most widely used blockchain in the world, which is expected to undergo a network upgrade that would allow it to process a number of transactions similar to that of Mastercard Inc. and Visa Inc. The switch to the new system could dampen the total supply of Ether, the price of which has quadrupled so far this year.
Ayyar from Luno has said he expects Bitcoin to stabilize and reach all-time highs. But that would be followed by a bigger drop in the cryptocurrency, he said.
Soravis Srinawakoon, chief executive of Bangkok-based Band Protocol, said the crypto dive was healthy.
“It’s just a normal pullback after Bitcoin’s seven straight weeks in the green, due to the over-indebtedness of many people.”
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