Bitcoin suffered its biggest reverse of the year on Friday, tumbling almost 30 per cent in frantic trading that brought one cryptocurrency exchange to a standstill as investors reacted to warnings from global regulators and concerns about security in the nascent market.
The cryptocurrency, whose meteoric rise has been labelled a bubble by many critics, fell as much as 28.5 per cent on the bitstamp exchange to $11,159.93 per coin by late afternoon in London, Reuters data showed. It later recovered some lost ground.
Bitcoin reached an all-time peak of $19,666 on December 17. Friday’s lurch downwards was the biggest since the currency began its ascent from $1,000 at the start of this year.
In a sign of the tumult, Coinbase, the most popular US exchange, “temporarily disabled” buying and selling midway through the American trading day, citing “today’s high traffic”.
It warned customers trying to withdraw funds into accounts denominated in euros to expect delays of up to 10 days owing to the “extremely high volume of transactions”.
Steven Englander of Rafiki Capital Management said the moves underlined “a fundamental problem in trying to pick a bottom price for bitcoin”.
“My guess is that there will be efforts to push bitcoin higher, and create a ‘buy the dip’ mentality,” he said. “But today’s moves reflect the issues that likely make the long-term equilibrium price much lower than today’s.”
Other digital currencies also fell on Friday, according to coinmarketcap.com which tracks them. Ethereum, the second-largest cryptocurrency by market capitalisation, was 22.9 per cent lower at $624.10, while bitcoin doppleganger “bitcoin cash” fell 27.5 per cent.
The moves reversed a surge in bitcoin prices over the past month that evoked comparisons with the dotcom bubble of the late-1990s. The rise intensified concerns by authorities that some consumers may not be aware of the risks of speculating in cryptocurrencies and companies related to them. Wall Street has also tried to capitalise on the fervour. Chicago futures markets operators CME Group and Cboe Global Markets both launched bitcoin futures this month.
The washout in bitcoin was accompanied by the highest daily volumes in the two-week history of bitcoin futures. On Cboe Global Markets futures volumes surpassed 10,000 bitcoin equivalent, more than double any previous day since their December 10 launch. Volume at CME Group, where bitcoin futures were listed this week, were the equivalent of more than 9,000 bitcoin by midday on Friday.
The advent of futures made it easier for traders to take bearish positions in bitcoin. However, the futures volumes were eclipsed by the more than 1.5m bitcoin that changed hands on cash exchanges, according to coinmarketcap.com.
Chris Beauchamp, market analyst at IG that runs a platform that allows traders to speculate on bitcoin, said “we’re seeing the first stirrings of a two-way market thanks to the futures now [being] available.”
Heightened investor interest in recent months prompted the Financial Industry Regulatory Authority, Wall Street’s self-regulator, to warn investors on Thursday to be “cautious when considering the purchase of shares of companies that tout the potential of high returns associated with cryptocurrency-related activities”.
Those worries were sharpened on Thursday after small US-listed soft-drink maker called Long Island Iced Tea Corp surged as much as 500 per cent after changing its name to Long Blockchain Corp, echoing similar events that have played out in recent weeks.
Earlier in the week in South Korea, the bitcoin exchange Youbit announced that it had been hacked, causing it to lose 17 per cent of its assets and forcing it into bankruptcy. Youbit told investors they could only withdraw about 75 per cent of their digital currency. Coinbase also said it was investigating staff after a sudden jump in the value of bitcoin cash.