Biggest bitcoin plunge since March shakes faith in crypto boom

NEW YORK • A steep sell-off in bitcoin is fuelling fears that the cryptocurrency bubble may be about to burst.

Bitcoin slid by as much as 26 per cent over Sunday and Monday in the biggest two-day slide since March.

After dropping by as much as 20 per cent during New York trading hours on Monday, the price continued to fluctuate wildly.

Bitcoin has wiped out about US$185 billion (S$246 billion) in value since last Friday, more than the market capitalisation of 90 per cent of individual companies in the S&P 500.

"It's to be determined whether this is the start of a larger correction, but we have now seen this parabola break, so it might just be," said Mr Vijay Ayyar, head of business development with crypto exchange Luno in Singapore.

Bitcoin has more than quadrupled in the past year, evoking memories of the 2017 mania that first made cryptocurrencies a household name before prices collapsed just as quickly. Prices almost reached US$42,000 last Friday, with retail traders and Wall Street investors clamouring for a piece of the action.

"It was a parabolic move," said Miller Tabak + Co chief market strategist Matt Maley. "What happens with all parabolic moves? You see severe corrections."

While Mr Maley sees bitcoin moving much higher over the long term, it will still experience severe corrections along the way, he said. "It will still have big declines of anywhere from 30 per cent to 60 per cent," he added. "And it's going to happen more than once."

Bitcoin slid 13 per cent to around US$33,159 as at 1.36pm in New York on Monday. Other coins, including bitcoin cash, ether and litecoin, fell even more.

"Time to take some money off the table," Guggenheim Investments chief investment officer Scott Minerd said in a tweet from his verified Twitter account. "Bitcoin's parabolic rise is unsustainable in the near term." Late last month, Mr Minerd predicted that bitcoin could eventually reach US$400,000.

True believers in bitcoin argue that the rally this time is different from past boom-bust cycles because the asset has matured with the entry of institutional investors and is increasingly seen as a legitimate hedge against dollar weakness and inflation risk.

Others worry that the rally is untethered from reason and fuelled by vast swathes of fiscal and monetary stimulus, with bitcoin unlikely to ever serve as a viable currency alternative.

With so many investors wanting to get rich on bitcoin, the asset is drawing the attention of regulators.

On Monday, Britain's financial watchdog issued a stark warning for consumers looking to profit from crypto: Be ready to lose everything.

"Investing in crypto assets, or investments and lending linked to them, generally involves taking very high risks with investors' money," the Financial Conduct Authority said. Its concerns include price volatility, the complexity of products offered and the lack of consumer protection regulation around many of the products.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 13, 2021, with the headline 'Biggest bitcoin plunge since March shakes faith in crypto boom'. Print Edition | Subscribe