23 May 2018

Just Another Plunge For Bitcoin - A 25% Plunge

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The price of bitcoin plunged by as much as 25% on Tuesday amid concerns about tighter regulation, with the volatile virtual currency dropping below $11,000 for the first time since early December.

By late in the day in New York, bitcoin traded at $10,370, according to data provided by Coindesk.com—down 48% from its peak of $19,783 last month.

Bitcoin prices surged to records late last year as traders prepared for the launch of futures contracts on Cboe Global MarketsCBOE 1.37% and CME Group. Contracts trading on the Cboe are scheduled to expire Wednesday for the first time since they launched, a process that can lead to more volatile trading.

The spot contract expiring Wednesday was slightly below the spot price of bitcoin. Futures trading at a lower price than their underlying asset—known as backwardation—can be a bearish sign for an asset. Spot and futures prices tend to converge as the expiration date arrives.

Tuesday’s fall also followed attempts by various governments to tighten control over cryptocurrency trading, such as in South Korea, where the assets are popular. Last week Chinese authorities ordered some large bitcoin-mining operations to close. 

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“This has clearly rattled investors. And understandably so,” said Kerrie Walsh, assistant economist at Capital Economics. “The more widespread bitcoin becomes, the more likely it is that stricter regulations will be enforced.”

People’s Bank of China Vice Gov. Pan Gongsheng has also suggested a ban on centralized trading of cryptocurrencies in an internal memo, Reuters news agency reported Tuesday.

“Any scheme that reduces the anonymity of bitcoin transactions could strip away much of the cryptocurrency’s appeal,” Ms. Walsh added.

However, volumes in bitcoin futures have continued to rise, according to Cboe, with open interest in January futures declining by less than 7% from their highs, and activity in February and March futures rising.

Sharp moves like Tuesday’s fall aren’t unusual for bitcoin, with the currency dropping as much as 30% between the 16th and 22nd of December and falling by as much as 25% in mid-November.

A collection of bitcoin, litecoin and ethereum tokens. Cryptocurrencies fell Tuesday.

Other cryptocurrencies also tumbled Tuesday, with ether, the second largest by market share after bitcoin, falling as much as 23%.

Other rival currencies, including ripple and bitcoin cash, fell by about 18% and 10% respectively at their lowest points, according to data from CryptoCompare.

Bitcoin’s share of the market for virtual currencies has declined, boosting “altcoins” such as ethereum, ripple and litecoin.

“Bitcoin’s market share continues to drop, with a potentially unlimited number of other cryptocurrencies available, increasing the risk of a price collapse,” said Mark Haefele, UBS Wealth Management’s global chief investment officer.

Not all analysts and investors see a grim future for cryptocurrencies.

The rapid rise of transaction fees, driven by the limited number of trades that can be processed each second, has discouraged some investors from moving into the market, according to David Coker, lecturer in accounting, finance and governance at Westminster Business School.

“When people have dumped bitcoin they might well have come back in, but people who have put in a hundred or two hundred bucks are dissuaded because those fees are too high,” Mr. Coker said.

Tweaks to the technology behind bitcoin like Segregated Witness—an update which would allow more transactions a minute to be processed—would reduce transaction fees and dampen market volatility, according to Mr. Coker. “Over time, maybe a year out, you should see the volatility start to decline.”

 Click here for the original article from The Wall Street Journal.
 

 

 

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