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Bitcoin flopped in trading on Monday when the famous volatile cryptocurrency fell back after a spectacular New Years rally.
Prices fell as much as 17% in the biggest drop since March before recovering. Losses are small against the backdrop of Bitcoin’s broader rally, jumping 50% in December alone. After a parabolic 2020, the digital currency had started the new year with a bang, climbing as high as $ 34,000 and hitting all-time highs on Sunday.
Bitcoin was down 7% to $ 31,227 at 12:59 pm in London.
“Today’s sell-off is a reminder that this is a relatively new, highly volatile asset and has yet to find its place in the market,” said Adrian Lowcock, director of personal investments at Willis Owen Ltd. “There are a lot of hurdles ( important) to overcome it to be a useful primary asset. ”
As always in the world of cryptocurrencies, it is difficult to pin down the immediate cause of the latest episode of volatility. Bitcoin has risen more than 300% over the past year, fueled by a speculative fever from retail and institutional investors in the belief that cryptocurrencies are emerging as a mainstream asset class and can act as a store of value.
Believers in Bitcoin have pointed to market supply constraints and supposedly rampant printing of money by central banks as key drivers of the bullish narrative. Others say cryptocurrencies are a budding bubble and another sign that crazy risk-taking has taken over global markets.
“Hot Nasdaq stocks, Chinese internet games and promising biotechnologies all of a sudden seem dull compared to the action unfolding in the cryptocurrency space,” said Louis Gave, co-founder of Gavekal Research.
After a year in which Robinhood investors emerge as a powerful market force, some are wondering if small traders could move from tech stocks to cryptocurrency speculation.
“The growing market capitalization of Bitcoin has to come at someone’s expense,” Gave said. “Will the fringe retail dollar start to give up on the beloved Robinhoods of 2020 and shift into the roaring crypto market instead?”
The weaker dollar could also be playing a role in Bitcoin’s furious rise, said Paul Hickey of Bespoke Investment Group. “The last time the dollar experienced a major decline in six months was in the second half of 2017,” he said. “That is also the same time that Bitcoin started to go mainstream.”
© 2021 Bloomberg LP
