The world’s favourite cryptocurrency fell back to earth on Tuesday as investors nervous about its soaring valuation sparked a 17% drop.
It was bitcoin’s biggest daily drop in a month, as it fell as low as $45,000 and was last down 15.6% thanks, in the main, to the liquidation of leveraged bets sparking a sell-off across cryptocurrency markets.
The fall took its losses to over a fifth from a record high of $58,354 which it hit on Sunday. Bitcoin is, though, still up around 60% this year.
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“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.”
Ether, the world’s second largest cryptocurrency by market capitalisation that often moves in tandem with bitcoin, also dropped more than 20% to $1,410, down over 30% from last week’s record peak.
Cryptocurrency markets have been running hot this year as big money managers and companies begin to take the emerging asset class seriously, piling money into the sector and driving confidence among small-time speculators.
A $1.5 billion investment by electric carmaker Tesla this month has helped vault bitcoin above $50,000 but may now lead to pressure on the company’s stock price as it has become sensitive to movements in bitcoin.
Rising government bond yields over recent days have hit riskier assets in traditional markets, with the caution spilling over into highly leveraged bitcoin markets, said Richard Galvin of crypto fund Digital Asset Capital Management.
Exchanges popular with cryptocurrency investors in Asia, including Binance and Huobi, accounted for about 70% of liquidations of leveraged bets over the last 24 hours, according to crypto data site Bybt.
Bitcoin’s losses were “compounded by the amount of liquidation that has happened in the last 24 hours”, said Lan Gu of Alameda Research, a crypto trading firm.
The cryptocurrency’s rapid gains in recent months have led to calls from governments and financial regulators for tighter regulation.
US Treasury Secretary Janet Yellen said on Monday that bitcoin was extremely inefficient at conducting transactions and was a highly speculative asset.
Bitcoin’s high volatility, critics say, is among reasons that it has so far failed to gain widespread traction as a means of payment – an expectation that has in part fuelled its rally.
- Reporting by Reuters