T HE price of bitcoin tumbled sharply Friday, wiping one-fourth of its market value in the past 24 hours alone, as a wave of selling hit the broader cryptocurrency market just before the Christmas holiday weekend.
Bitcoin recently traded at $12,000 after earlier falling as low as $10,891, according to research site CoinDesk. Thursday morning, bitcoin had traded at about $16,000. The notoriously volatile digital currency started December at about $10,000 and traded close to $20,000 this past weekend, but has been in retreat since.
From its recent peak, the virtual currency has lost more than $120 billion of its total market value in less than a week, or more than twice the market cap of Tesla Inc.
It wasn’t the only currency feeling the pain. Many so-called “altcoins”—shorthand for alternative versions of bitcoin—also declined. And of the 31 digital currencies that have at least a $1 billion market value, 29 were recently down, according to data provider CoinMarketCap.
While bitcoin has been volatile in the past, the timing of Friday’s sharp selloff caught many investors by surprise.
Jani Hartikainen, a 30-year old software developer in Finland who owns bitcoin and other digital currencies, was working early Friday morning when a message from a friend in a private group chat at 4 a.m. alerted him to bitcoin’s sudden drop.
After receiving that message, Mr. Hartikainen, who said he first bought bitcoin in March, said that he sold almost all of his position.
“There’s been a lot of talk about how bitcoin is in a bubble,” he said, adding that he had been worried about how sharply bitcoin had rallied recently. “If I keep holding this, how long is it going to keep going up in value, and if it starts crashing, am I going to have enough time to get out of it?”
ther, the second-biggest digital currency by market value, dropped 26% over the past 24 hours. Another currency called litecoin was down 32%. Its creator, Charlie Lee, said earlier this week that he was selling all his holdings of the currency. Litecoin, whose price hit an record high of $375 on Tuesday, recently traded at $229.
Mr. Lee, a former Google engineer who created litecoin in 2011, also warned on Twitter that litecoin was getting “so much mainstream exposure” and that “every crypto bull run I’ve seen has been followed by a bear cycle.”
Digital currencies exploded into the mainstream this year, garnering attention for huge price gains as well as significant swings and drawing scores of investors around the world. The market’s price moves starkly contrast with how most traditional asset classes have fared so far this year, such as stocks and bonds, where volatility has been relatively low.
Bitcoin has fallen more than 30% over the past four days, its fifth such decline of that magnitude this year, according to Charlie Bilello, director of research at Pension Partners, an investment-advisory firm in New York. In the prior four instances, it took Bitcoin an average of 38 days to hit a new high.
Bitcoin trading volumes in recent months have been driven to a large extent by investors in South Korea, Japan and other parts of Asia, where digital currencies have gained greater recognition. Rising interest from institutional investors and Wall Street firms have also helped legitimize the currency and contributed to bitcoin’s big gains.
Bitcoin futures prices on Cboe Global Markets Inc. and CME Group, both of which started trading the contracts earlier this month, were both more than 10% lower on Friday. They were recently pricing in a lower value for the digital currency in the first quarter of 2018 than its current value, a state known in futures markets as “backwardation” and a potentially bearish sign.
A popular alternative currency called Bitcoin Cash has also fallen 40% over the past 24 hours, according to CoinMarketCap. The bitcoin offshoot climbed in value earlier in the week after Coinbase, which operates one of the world’s largest cryptocurrency trading platforms, said its users would be able to trade the currency on its systems.
Coinbase, however, has so far had to intermittently halt trading because of insufficient liquidity. The company is also investigating allegations that some of its insiders or their family and friends could have traded Bitcoin Cash ahead of its launch plans.
One outlier is ripple, the third largest digital currency by market value. It has risen 7% in the past 24 hours.
The explosive growth in cryptocurrencies has drawn plenty of skeptics, including central banks, government officials, top bankers and others who think bitcoin is in a bubble that won’t end well when it bursts. “The Daily Show,” a popular late-night, satirical program, ran a segment last week investigating the market’s rapid rise.
“There is no way all these people buying cryptocurrencies have any idea what the hell they’re investing in,” “The Daily Show” correspondent Ronny Chieng said on the show.
Others took a different approach.
Brandon Hilde, a 23-year-old software engineer in Oregon, said he sold his bitcoin position earlier this month after the U.S. bitcoin futures contracts launched, but then bought more bitcoin at a lower price during the recent selloff.
He said he has been able to live off the profits from trading cryptocurrencies for the past six months.
“I bought back in just now,” he said. “I see a future where bitcoin is the currency for trading international assets.” - WSJ
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