A steep selloff in Bitcoin is fueling concern that the cryptocurrency bubble may be about to burst.
Bitcoin slid as much as 26 percent over Sunday and Monday in the biggest two-day slide since March. After dropping as much as 20 percent during New York trading hours on Monday, the price continued to fluctuate wildly. Bitcoin has wiped out about $185 billion (roughly Rs. 13,56,050 crores) in value since Friday, more than the market capitalisation of 90 percent 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 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 $42,000 (30.8 lakhs) on January 8 with retail traders and Wall Street investors clamoring for a piece of the action.
“It was a parabolic move,” said Matt Maley, chief market strategist at Miller Tabak + Co. “What happens with all parabolic moves? You see severe corrections.”
While 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 30-60 percent,” he said. “And it's going to happen more than once.”
“Time to take some money off the table,” Scott Minerd, chief investment officer with Guggenheim Investments, said in a tweet from his verified Twitter account. “Bitcoin's parabolic rise is unsustainable in the near term.” In late December, Minerd predicted Bitcoin could eventually reach $4,00,000 (roughly Rs. 2.9 crores).
Bitcoin's parabolic rise is unsustainable in the near term. Vulnerable to a setback. The target technical upside of $35,000 has been exceeded. Time to take some money off the table.— Scott Minerd (@ScottMinerd) January 11, 2021
True believers in Bitcoin argue 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 fueled 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, the UK'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 in a statement. The FCA's concerns include price volatility, the complexity of products offered and the lack of consumer protection regulation around many of the products.
- With assistance from Mark Cranfield.
© 2021 Bloomberg LP
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