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LONDON / TOKYO (Reuters) – Bitcoin fell sharply on Monday, losing ground from an all-time high of $ 34,800 hit a day earlier, and traders cited volatility in highly leveraged futures markets.
Bitcoin fell more than 14% after touching as high as $ 33,670, wiping out more than half of its 20% rally since New Year’s Eve to a record high of $ 34,800 on Sunday.
Bitcoin was last down 8% at $ 30,542.
A functioning crypto derivatives market has developed since 2017, and offshore stock exchanges continue to offer highly leveraged trading. Movements in such markets can have a huge effect on the price of bitcoin.
“It’s the reduction of some of that leverage,” said Richard Galvin of the crypto fund Digital Asset Capital Management.
Bitcoin’s record high came less than three weeks after it crossed $ 20,000 for the first time, on December 16. The world’s largest cryptocurrency quadrupled in price last year.
Traders said that bitcoin’s slide on Monday was not unusual for the volatile asset, whose strong price swings have partly prevented it from being widely used as a currency.
“It remains an inevitably volatile asset by its nature,” said Joseph Edwards of cryptocurrency brokerage Enigma Securities.
“For the most part, this looks like a purely technical move, signaled and caused by a short-term euphoria,” he added.
Smaller coins that often move in tandem with bitcoin also fell, although not quite as sharply. Ethereum, the second-largest, fell 1% after hitting a 3-year high of $ 1,170.
Fueling the rally in bitcoin has been the perception that it can act as a hedge against inflation risk as governments and central banks turn on stimulus taps to counter the economic impact of the COVID-19 pandemic.
“Some of this reflects the fear of a weaker dollar,” Bank of Singapore currency analyst Moh Siong Sim said of its most recent rally.
Still, gold was up 2%, underscoring bitcoin’s uneven correlation with traditional inflation hedging.
Bitcoin’s advance has also reflected expectations that it will become a mainstream payment method. Its quick profit potential has also attracted demand from larger US investors.
(Reporting by Tom Wilson in London and Kevin Buckland in Tokyo; Additional reporting by Tom Westbrook and Alun John; Editing by Kenneth Maxwell, Raju Gopalakrishnan, Bernadette Baum and Alex Richardson)
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