Biggest Bitcoin plunge since March shakes crypto market confidence

Bitcoin's recent sharp sell-off has heightened concerns that the cryptocurrency bubble may be about to burst. Bitcoin fell as much as 26% on Sunday and Monday, its biggest two-day drop since March 2020. Prices continue to fluctuate wildly after falling as much as 20% during New York trading hours on Monday.

Bitcoin has lost about $185 billion in market value since Friday, more than 90% of the individual companies in the S&P 500.

“It remains to be seen whether this is the start of a bigger correction or not, but we have seen a parabolic breakout now so it could just be that,” said Vijay Ayyar, head of business development at Luno, a Singapore-based cryptocurrency exchange.

Bitcoin has more than quadrupled in the past year, evoking memories of the 2017 frenzy that first made the cryptocurrency a household name and then the speed with which it crashed. Prices nearly hit $42,000 on Friday, thrilling retail and Wall Street investors.

“This is a parabolic move higher,” said Matt Maley, chief market strategist at Miller Tabak + Co.

“What happens to all parabolic moves? We’re going to see a severe correction.”

While he believes Bitcoin will move higher in the long run, it will still experience severe corrections along the way. “It’s still going to probably drop anywhere between 30% and 60%,” he added. “And it’s going to happen more than once.”

Bitcoin fell 13 percent to around $33,159 at 1:36 p.m. New York time on Monday. Other digital currencies, including bitcoin cash, ethereum and litecoin, fell more.

“It’s time for the market to take a moment,” Scott Minerd, chief investment officer at Guggenheim Investments, said in a tweet from his verified Twitter account. “Bitcoin’s parabolic rise is not sustainable in the short term.” Late last month, Mr. Minerd predicted that Bitcoin would eventually reach $400,000.

True Bitcoin believers argue that this rally is different from past boom-bust cycles because the asset has matured as institutional investors enter the market and is increasingly seen as a legitimate hedge against dollar weakness and inflation risks.

Others worry that Bitcoin’s rally, fueled by massive fiscal and monetary stimulus, is unfettered by rationality and that it is unlikely to become a viable currency alternative.

With so many investors hoping to get rich from Bitcoin, the asset has attracted the attention of regulators.

On Monday, the UK's financial regulator, the FCA, issued a stern warning to consumers hoping to profit from cryptocurrencies: Invest in Bitcoin and be prepared to lose everything.

"Investing in or relating to crypto assets and lending often exposes investors to a high level of risk," the FCA said. Its concerns included price volatility, the complexity of the products on offer and the lack of consumer protection regulation for many products.