(ATF) Bitcoin fell by over 15% before recovering some ground to $56,100 by late on Sunday April 18. The digital currency had been as low as $51,500 at one point in the day, or over 20% below the record of almost $65,000 seen last week just ahead of the direct listing on Nasdaq of Coinbase, the cryptocurrency exchange.
There was no single reason for the sharp fall in bitcoin, leading to speculation that a power blackout in China’s Xinjiang region was affecting computers used to mine for new bitcoins. There were also unconfirmed reports that US regulatory authorities are about to take action to limit money laundering via digital assets.
Some investors thought that bitcoin had simply risen too fast last week in the optimism surrounding the Coinbase listing and another sign that cryptocurrency trading is going mainstream.
“With hindsight it was inevitable. Markets got too excited around Coinbase direct listing. (Futures) basis blowing out, coins like BSV, Ripple and Dogecoin pumping. All were signs that the market got too one way. We will be fine in the medium term as institutions (are) coming to the space,” former Goldman Sachs partner and current head of fund Galaxy Digital Michael Novogratz tweeted on Sunday April 18.
“In the shorter term we will need to rebuild a trading base. Market damage doesn’t heal overnight. Good luck out there,” Novogratz said in a follow up tweet.
In another demonstration of the move by cryptocurrencies into the mainstream, Novogratz had announced on Friday April 16 that Michael Daffey, a former co-head of equities at Goldman who recently left the bank, is joining Galaxy Digital as a senior adviser and chair of its board.
Luke Sully, CEO at digital asset treasury specialist Ledgermatic, told Reuters that people “may have sold on the news of the power outage in China and not the impact it actually had on the network. The power outage does expose a fundamental weakness; that although the bitcoin network is decentralized, the mining of it is not.”
Some blockchain analysts on Twitter pointed to a sharp drop in the “hash rate” due to the outage.
The hash rate refers to the volatility index that measures the processing capacity of the entire bitcoin network, and it determines the power required by miners to produce new bitcoins.
“Typically shocks to hash rate do not cause price drops. A hash rate reduction slows transactions, which ironically makes it harder to move coins to exchanges for sale. The recent price drop is well within the bounds of typical volatility, it is noise not signal,” said Edan Yago, co-founder at bitcoin-based decentralised finance protocol Sovryn.
The retreat in Bitcoin also came after Turkey’s central bank banned the use of cryptocurrencies for purchases on Friday.
Edward Moya, a senior market analyst at OANDA, said cryptocurrencies had been ripe for a pullback.
“The market has become overly aggressive and bullish on everything,” Moya said. “It could have been any bearish headline that could have triggered this reaction.”
Many cryptocurrency markets operate 24/7, setting the stage for price swings at unpredictable hours. Historically, retail and day traders have driven the moves.
Despite the sudden selloff, bitcoin is still up 90% so far in 2021, driven by its growing acceptance as an investment and a means of payment, accompanied by the rush of retail cash into stocks, exchange-traded funds and other risky assets.
The weekend sell-off may have been exacerbated by news that insiders in Coinbase including the CEO and chief financial officer sold large portions of their stock as the company listed, and this could combine with the bitcoin fall to put downward pressure on the exchange’s Nasdaq-listed shares on Monday April 19.