Bitcoin’s Biggest Plunge Since March Shakes Faith in Crypto Boom

A steep selloff in Bitcoin is fueling concern that the cryptocurrency bubble may be about to burst.

Bitcoin slid as much as 26% over Sunday and Monday in the biggest two-day slide since March. After dropping as much as 20% during New York trading hours on Monday, the price continued to fluctuate wildly. Bitcoin has wiped out about $185 billion in value since Friday, more than the market capitalization of 90% of individual companies in the S&P 500.

The digital coin rose 4.9% to $35,616 as of 11:30 a.m. in London, following yesterday’s 11% slide. The latest bout of roller-coaster volatility recalls past boom and bust cycles including the 2017 bubble, and has investors debating whether this is a healthy correction or the end of the latest bull run for cryptocurrencies.

“We think a pull back is healthy,” said David Grider, lead digital strategist with Fundstrat Global Advisors LLC, who added he doesn’t think the recent price action indicates that Bitcoin has already topped out.

Investors who bought the digital coin a year ago are still sitting on gains exceeding 300%. Pinpointing who is mainly responsible for the rally is one of the many crypto mysteries -- Bitcoin funds, momentum chasers, billionaires, day traders, companies and even institutional investors have all been cited.

Just as hard is working out what caused the recent two-day drop of as much as 26%. For some, a bounce in the dollar may be among the reasons. The greenback has snapped a prolonged losing streak after rising U.S. government bond yields bolstered its allure.

“There’s signs that retail investors are taking profit,” said Ryan Rabaglia, the global head of trading at OSL. “Heightened volatility is often correlated with an uptick in retail participation.”

At the same time, the world remains awash with monetary and fiscal stimulus, and some of that wall of money could yet gravitate to crypto assets. Bitcoin believers continue to tout the digital currency as a viable hedge for inflation risk and the potential debasement of fiat currencies. Some forecasts for its long-term price range from $146,000 to $400,000. - Bloomberg 

January 12, 2021