Bitcoin and other digital currencies plunged to as much as 26 per cent over Sunday and Monday in the biggest two-day slide since March last year, wiping about US$185 billion in value off the cryptocurrency market.
Any significant fall, as much as 20 per cent during New York trading hours on Monday, the price continued to fluctuate wildly triggering concerns of crypto bubble.
"It's to be determined whether this is the start of a larger correction, but we have now seen this parabola break so it might just be," said Vijay Ayyar, head of business development with crypto exchange Luno in Singapore.
The sudden spike
Bitcoin has more than quadrupled in the past year, evoking memories of the 2017 mania that first made cryptocurrencies a household name for quickly approaching the record highs before ending in a violent crash. Bloomberg said the digital asset, which was originally promoted as an alternative to national currencies such as the US dollar, surged as much as 2.6 per cent to US$18,092 in mid-November.
Its gains, last year, followed a wider backing from the Wall Street kingpins, including Fidelity Investments, which launched a Bitcoin fund over the summer. While some die-hard crypto fans were stuck with it through its ups and downs, others became newly enchanted by the asset during stay-at-home order owing to the coronavirus pandemic.
For example, prominent money managers such as macro investor Paul Tudor Jones also became crypto converts and bought the coin as a hedge against the potential inflation during the hard times.
Cryptocurrency enters Bear market
Bizarre it may sound, but a more than 20 per cent drop means that the bitcoin has now entered a Bear Market. Despite several ups in the past few months, the sudden drop highlights how the stunning rise has raised alarm bells among those on Wall Street.
"It's scary when the price of bitcoin just goes straight up," James Putra, vice president of product strategy for TradeStation Crypto, told CNN. "This pullback was needed," he stressed.
Bitcoin had initially surpassed the US$ 20,000 level in mid-December and soared above US$ 30,000 earlier this month -- a huge rebound from a low of just above US$ 4,000 as the Covid-19 outbreak sent global financial assets plummeting last spring.
Even with the drops over the weekend and Monday, bitcoin is still up more than 10 per cent already in 2021 -- and it has soared about 300 per cent in the past 12 months, according to market reports.
Worst plunge in a year
As per reports, the market capitalization or value of the cryptocurrency market almost reached US$ 42,000 on January 8 with retail traders and Wall Street investors clamouring for a piece of the action.
"It was a parabolic move," said Matt Maley, chief market strategist at Miller Tabak + Co."What happens with all parabolic moves? You see severe corrections." Though he believes that Bitcoin is moving much higher over the long term, he still insists that it will still experience severe corrections along the way.
"It will still have big declines of anywhere from 30-60 percent," he said. "And it's going to happen more than once," he added. Other digital coins including Bitcoin Cash, Ether, and Litecoin fell even more. "Time to take some money off the table. Bitcoin's parabolic rise is unsustainable in the near term," Scott Minerd, chief investment officer with Guggenheim Investments, said in a tweet.