New York/London - Bitcoin plunged by a
quarter to below $12 000 on Friday as investors dumped the
cryptocurrency in manic trading after its blistering ascent to a
peak close to $20 000 prompted warnings by experts of a bubble.
It capped a brutal week that had been touted as a new era of
mainstream trading for the volatile digital currency when
bitcoin futures debuted on CME Group Inc, the world's
largest derivatives market on Sunday.
Friday's steep fall bled into the U.S. stock market, where
shares of companies that have recently lashed their fortunes to
bitcoin or blockchain - its underlying technology - took a hard
knock in early trading.
The biggest and best-known cryptocurrency had seen a
staggering twentyfold increase since the start of the year,
climbing from less than $1,000 to as high as $19,666 on the
Luxembourg-based Bitstamp exchange on Sunday and to
over $20,000 on other exchanges.
Bitcoin has fallen each day since, with losses accelerating
on Friday.
In the futures market, bitcoin one-month futures on
Cboe Global Markets were halted due to the steep price drop,
while those trading on the CME hit the limit down
threshold.
In the spot market, bitcoin fell to as low as $11,159, down
more than 25 percent on the Luxembourg-based Bitstamp exchange
, its largest one-day drop in nearly three years. For
the week, it was down around a third - its worst performance
since April 2013.
"After its parabolic-like rally, a crash was imminent and so
it has proved," said Fawad Razaqzada, market analyst at
Forex.com in London. "Investors may have also been put off
buying bitcoin at those elevated levels amid repeated warnings
from experts about the way it had climbed near $20,000."
"A manic upward swing led by the herd will be followed by a
downturn as the emotional sentiment changes," said Charles
Hayter, founder and chief executive of industry website
Cryptocompare in London. "A lot of traders have been waiting for
this large correction."
"With the end of the year in sight a lot of investors will
be taking profits and saying thank you very much and closing
their books for the holiday period," he added.
Warnings about the risks of investing in the unregulated
market have increased - Denmark's central bank governor called
it a "deadly" gamble - and there have been worries about the
security of exchanges on which cryptocurrencies are bought and
sold.
South Korean cryptocurrency exchange Youbit said on Tuesday
it is shutting down and is filing for bankruptcy after it was
hacked for the second time this year.
Coinbase, a U.S. company that runs one of the biggest
exchanges and provides digital "wallets" for storing bitcoins,
said on Wednesday it would investigate accusations of insider
trading, following a sharp increase in the price of a bitcoin
spin-off hours before it announced support for it.
CRYPTO-RIVALS
As rival cryptocurrencies slid along with bitcoin, the total
estimated value of the crypto market fell to as low as $440
billion, according to industry website Coinmarketcap, having
neared $650 billion just a day earlier.
But other cryptocurrencies surged this week, with investors
moving into cheaper digital coins, rather than cashing out of
the sector.
Ethereum, the second-biggest cryptocurrency by market size,
soared to almost $900 earlier in the week, from around $500 a
week earlier. Ripple, the third-biggest, has more than
quadrupled in price since Monday.
Stephen Innes, head of trading in Asia-Pacific for retail FX
broker Oanda in Singapore, said that there have also been moves
out of bitcoin into Bitcoin Cash, a clone of the original
cryptocurrency. Oanda does not handle trading in bitcoin.
"Most of it is unsophisticated retail traders getting burned
badly," Innes said on bitcoin's recent retreat.
While some say the launch by CME and its rival Cboe Global
Markets of bitcoin futures over the last two weeks has given the
digital currency some perceived legitimacy, many policymakers
remain sceptical.
Bitcoin is known to go through wild swings. In November, it
tumbled almost 30 percent in four days from $7,888 to $5,555. In
September, it fell 40 percent from $4,979 to $2,972.