Bitcoin plummets as doubts grow over sky-high value

Bitcoin plummeted as much as 17% on Tuesday as investors grew nervous at sky-high valuations, triggering the liquidation of leveraged bets and sparking a sell-off across cryptocurrency markets.

The world’s biggest cryptocurrency was facing its biggest daily drop in a month, falling to as low as $45,000. In choppy trading, it was last down 15.6%.

The drop took its losses to over a fifth from a record high of $58,354 hit on Sunday and underscored the emerging asset’s volatility – though it is still up around 60% 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.”

"In investing, what is comfortable is rarely profitable." – Robert Arnott on #Bitcoin

— Michael Saylor⚡️ (@saylor) February 23, 2021

Ether, the world’s second-largest cryptocurrency by market capitalization 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. Still, it may lead to pressure on the company’s stock price as it has become sensitive to bitcoin movements.

LEVERAGED LOSSES

Rising government bond yields have hit riskier assets in traditional markets over recent days, with the caution spilling over into highly leveraged bitcoin markets, said Richard Galvin of crypto fund Digital Asset Capital Management.

According to crypto data, 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 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 have led to calls from governments and financial regulators for tighter regulation in recent months.

U.S. Treasury Secretary Janet Yellen said that bitcoin was extremely inefficient at conducting transactions and was a highly speculative asset.

Bitcoin’s high volatility, critics say, is among the 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.

Analysts said that, with few fundamental factors to judge bitcoin’s value, key price levels would play a large part in determining the direction of crypto markets.

“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.”

(Reporting by Tom Wilson in London and Tom Westbrook in Singapore; Editing by Jacqueline Wong and Nick Macfie)

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