In Depth

Volatile Bitcoin falls sharply after weeks of boom

With cryptocurrencies experiencing strong gains after 2017’s burst bubble, the latest crash is a reminder they remain fragile

The world’s most widely traded digital currency fell $1,800 in a matter of minutes, virtually wiping out a month of gains, in a drop that underscores the volatility of digital currency.

Bloomberg reports that “Bitcoin soared as much as 39% this week to $13,852, the highest since January 2018. But it hit a brick wall around 4:30 p.m. New York time Wednesday, plunging more than $1,800 within about 10 minutes. Moments later, prominent cryptocurrency exchange Coinbase Inc. reported an outage on its consumer site, which was resolved in under an hour. Swings continued Thursday, with the coin anywhere from down 15% to up 4.8%.”

Genesis Global Trading CEO Michael Moro told CNBC that “even the most optimistic crypto bulls would tell you that a 50%+ move in a week is too much too fast.” He said a “key driver” behind the price whiplash was leverage — borrowing money — to make a trade. “The presence of leverage exacerbates the moves in both directions and affects the speed dramatically.”

Investor’s Business Daily raises the prospect that another cryptocurrency bubble could be about to burst, adding that other digital currencies “also fell sharply Thursday. Ethereum, Bitcoin Cash and Ripple (also known as XRP) all suffered double-digit losses after strong gains Wednesday.”

Factors determining the general increase in demand for digital currencies include geopolitical tensions involving Iran and the US-China trade war, dovish monetary easing by central banks, and the recent trend for large institutions trying to enter the cryptocurrency market.

As the Financial Times reports, “Analysts said the bout of enthusiasm for virtual currencies had been stoked by a confluence of factors. Among the most significant is Facebook’s move into the world of crypto, launching its own currency called Libra in an attack by big tech on the payments industry. Analysts are optimistic that Libra could help cryptocurrencies generally gain more mainstream acceptance, as means of payment and as a store of wealth.”

Speaking to the FT, Alistair Milne, chief investment officer of the Altana Digital Currency Fund, said that the rapid correction was “inevitable — you simply don’t go up this quickly and sustain it forever, followed by consolidation”.

“There are several things a trader needs to do in this volatile environment,” reflects Clem Chambers in Forbes. “Lower their leverage and keep their stops mental and away from round numbers and the platform’s awareness. It is and always has been a sad fact that leverage kills and the more you have the faster the demise.”

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