Bitcoin Plummets as Doubts Grow Over Sky-High Valuation

Reuters
By Reuters
February 23, 2021Business News
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Bitcoin Plummets as Doubts Grow Over Sky-High Valuation
A physical imitation of a Bitcoin is shown at a crypto currency "Bitcoin Change" shop, near Grand Bazaar, in Istanbul, Turkey, on Sept. 24, 2020. (Ozan Kose/AFP via Getty Images)

LONDON/SINGAPORE—Bitcoin plummeted as much as 17 percent 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 percent.

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

Ether, the world’s second largest cryptocurrency by market capitalization that often moves in tandem with bitcoin, also dropped more than 20 percent to $1,410, down over 30 percent 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.

imitation of a Ripple cryptocurrency
A physical imitation of Ripple cryptocurrency is shown in Dortmund, western Germany, on Jan. 27, 2020. (Ina Fassbender/AFP via Getty Images)

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.

Leveraged Losses

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 percent 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.

U.S. 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 fueled its rally.

Analysts said that 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.”

By Tom Wilson and Tom Westbrook

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