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Bitcoin is down 20% from its highs earlier this month, as a worrying new type of coronavirus prompted traders to dump risky assets around the world.
The world’s largest cryptocurrency fell 9% to $53,552 on Friday. Ether, the second largest digital currency, is down more than 12%, while the broader crypto Bloomberg Galaxy Index is down 7.7%.
A new variable identified in South Africa prompted liquidations in global markets, with European stocks falling the most since July and US stock indices trading lower. Bitcoin has not been spared the carnage despite it being increasingly viewed by many crypto enthusiasts as a hedge against financial market turmoil. Even as Bitcoin gains mainstream acceptance, the cryptocurrency is still subject to extreme volatility.
“To us, it’s still very much a risky asset,” said Ross Mayfield, Baird’s investment strategy analyst. “When things get a little scary, there will be sellers.”
Meanwhile, gold – a traditional safe-haven asset – was up as much as 1.5% on Friday morning, although the precious metal is still significantly underperforming bitcoin for the year so far.
“I think what role Bitcoin will eventually play is still uncertain. The role that something like gold and Treasuries will play is well known at this point. So the conclusion is that when things look really ugly, traditional safe havens will rise to the top,” he added. Mayfield.
The various news that the turbulent markets were not the only negative factor weighing on Bitcoin. This week, analysts cited a number of crypto hurdles including US tax reporting requirements for cryptocurrencies, intense regulatory tightening from China, and India’s sights on a new bill that could ban most private cryptocurrencies.
Bitcoin has been under pressure since hitting a record high of nearly $69,000 earlier this month due to enthusiasm for the first US exchange-traded fund linked to futures contracts on the digital asset. It is currently standing near the 100-day moving average of $53,940, which acted as support during the late September pullback.
“Paradoxically, the cryptocurrency market yesterday afternoon started looking very bullish with hopes of Santa Claus up,” Jonathan Cheesman, head of OTC and institutional sales at crypto derivatives exchange FTX, said in a note on Friday. It’s going to be a rough weekend for sure.
As always, the bulls remain committed to the view that more institutions and retail investors will embrace virtual currencies.
said Vijay Ayar, Head of Asia Pacific Division at Luno Pte. “This is a market reaction/correction within an uptrend,” who noted that options expiration days – such as Friday – can often be volatile. He said that a drop to the $48,000-$50,000 range could be more worrying, and that “a 20% decline is normal for a Bitcoin bullish as we’ve seen many times before.”
Katie Stockton, founder of Fairlead Strategies LLC, said in a note on Friday that two consecutive daily closes below the $52,900 level would increase the risk of a deeper pullback towards the next support level near $44,200. But that’s no reason to sell, she said.
“We will hold long positions, for now, given the possibility of a sudden rally in the coming days from oversold territory, noting that medium-term momentum remains to the upside,” Stockton said.
Currently, Bitcoin’s decline is a sideshow to global market dips on the new variable identified as B.1.1.529 as policy makers rush to retool their cross-border travel policies.
The biggest token is still up over 85% this year.
(Update prices; add a reference to volatility in the third paragraph.)
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