Key test for plunging Bitcoin as ‘sharks’ circle
NEW YORK Bitcoin faced one of its biggest tests this week, losing almost a quarter of its value after the world’s largest cryptocurrency reached a record high Monday.
The digital currency plunged as much as 30 per cent on Friday, before paring losses, as this week’s sell-off entered a fourth day with increasing momentum. Other cryptocurrencies also tumbled: ethereum dropped as much as 36 per cent and litecoin slumped as much as 43 per cent, according to composite prices on Bloomberg.
Michael Novogratz, the former Goldman Sachs Group Inc. and Fortress Investment Group LLC macro trader, said he’s shelving plans to start a cryptocurrency hedge fund and predicted that bitcoin may extend its plunge to US$8,000.
“We didn’t like market conditions and we wanted to re-evaluate what we’re doing,” Novogratz said in a phone interview. He predicted last week that bitcoin could reach US$40,000 within a few months.
Bitcoin dropped to as low as US$10,776, before recovering to US$13,48 at 2:01 p.m. in New York. It last traded below US$10,000 on Dec. 1 when the U.S. Commodity Futures Trading Commission agreed to allow trading in bitcoin futures. For the week, the decline is 24 per cent. The price of the digital coin had more than doubled in the prior three weeks.
This week’s losses represent a major test for the cryptocurrency industry and the blockchain technology that underpins it, which have rapidly entered the mainstream in recent weeks. Bears cast doubt on the value of the virtual assets, with UBS Group AG this week calling bitcoin the “biggest speculative bubble in history.” Bulls argue the technology is a game changer for the world of investment and finance. Both will be closely watching the outcome of the current sell-off.
“The sharks are beginning to circle here, and the futures markets may give them a venue to strike,” said Ross Norman, chief executive officer of London-based bullion dealer Sharps Pixley Ltd., which offers gold in exchange for bitcoin. “Bitcoin’s been heavily driven by retail investors, but there’ll be some aggressive funds looking for the right opportunity to hammer this thing lower.”
Many of the recent news stories and market moves connected to cryptocurrencies appear to carry hallmarks of the mania phase of a bubble. Long Island Iced Tea Corp. shares rose as much as 289 per cent after the unprofitable Hicksville, New York-based company rebranded itself Long Blockchain Corp. Bank of Japan Governor Haruhiko Kuroda said on Thursday bitcoin isn’t functioning like a normal means of payment and is being used for speculation.
Still, cryptocurrencies are attracting established players. Goldman Sachs Group Inc. is setting up a trading desk to make markets in digital currencies such as bitcoin, according to people with knowledge of the strategy.