With investors getting jittery about the astronomical price that the crypto currency bitcoin had attained in recent times, the value of the virtual currency sunk as much as 17 per cent on Tuesday. According to analysts, the drop came as the nervousness of investors resulted in them liquidating leveraged bets – thereby triggering a sell-off across crypto currency markets.
Bitcoin, the largest crypto currency of the world, is in the midst of a fall in the current month as it plummeted to as low as $45,000.
From a record high of $58,354 for the crypto currency on Sunday, the drop took the losses of bitcoin to over a fifth which highlighted the high degree of volatility in this emerging asset. Despite the recent fall the price of bitcoin was still about 60 per cent high so far this year.
“The kinds of rallies we’ve been seeing aren’t sustainable and just invite pullbacks like this,” said Craig Erlam, senior market analyst at OANDA. “It was an extremely overbought market.”
There was also a drop of about 20 per cent in the value of ether, the second largest crypto currency of the world by market capitalisation, at $1,410. Ether typically rises and falls with the value of bitcoin. The value of ether was 30 per cent lower than its record peak that it reached last week.
With big money managers and companies staring to take the emerging asset class seriously, the current year has been a prosperous one for the crypto currency markets and investors have been putting in money into this digital asset which has enhanced the confidence of small-time speculators.
For example, the price of bitcoin surpassed the historic $50,000 mark this month after the US electric car maker Tesla announced that it had invested $1.5 billion in the crypto currency. However the company’s balance sheet and stock price now could be under pressure because they have now become linked to the volatility of the crypto currency.
According to Richard Galvin of crypto fund Digital Asset Capital Management, riskier assets in traditional markets have been hit by the rising government bond yields over recent days and the caution has spilled over into the highly leveraged bitcoin markets.
According to crypto data site Bybt, about 70 per cent of the liquidations of leveraged bets over the last 24 hours was accounted for by crypto exchanges that are popular with investors of the virtual currencies in Asia, including Binance and Huobi.
Lan Gu of Alameda Research, a crypto trading firm said that bitcoin’s losses were “compounded by the amount of liquidation that has happened in the last 24 hours”.
However governments and financial regulators have called for tighter regulations on digital currencies because of the rapid gains made in recent months in the value of these virtual currencies.
Bitcoin was extremely inefficient at conducting transactions and a highly speculative asset, said the US Treasury Secretary Janet Yellen on Monday.
“It’s the big figures that have proved to be support and resistance points,” said Michael McCarthy, chief strategist at brokerage CMC Markets in Sydney. “$50,000, $40,000 and $30,000 are the key chart levels at the moment.”
(Adapted from Reuters.com)