Investors have shunned riskier assets this week, marking a sudden shift in mood that is delivering heavy losses to inexperienced traders.
Bitcoin, the volatile digital currency that briefly became a trillion-dollar market, plunged Wednesday as its monthlong slide morphed into a frenzied selloff.
Cryptocurrencies have surged over the past year on a wave of speculative excitement, spurred by famous backers as varied as Elon Musk, Paul Tudor Jones and Snoop Dogg.
That gave the small but growing crowd of bulls a feeling of inevitability that cryptocurrencies would mature into a significant asset class in their own right. Bitcoin, they wagered, might even fulfill its initial vision and become a legitimate alternative currency.
But the same momentum that drove prices higher is now sending them relentlessly lower.
Bitcoin, which traded around $7,000 at the beginning of 2020, peaked at $64,829 in mid-April. Since then, it has fallen 41% to $38,390 as of 5 p.m. ET Wednesday and earlier in the day dropped as low as $30,202.
“Many people have been tempted to invest purely because it has gone up in value and they have a fear of missing out,” said Rick Eling, investment director at wealth management firm Quilter. “Bitcoin is a volatile asset, and as we have seen so often in financial markets, boom is almost always followed by bust.”Performance of cryptocurrencies against theU.S. dollarSource: KrakenAs of May 19, 7:50 p.m. ET%BitcoinDogecoinEtherMay 18May 19-50-40-30-20-10010
Some of the stock market’s charge has stalled as well. Many of the momentum stocks, such as Tesla Inc. and Arrêt de jeu Corp. that investors piled into betting they could only go up, have run out of steam as investors worry about an eventual tapering of the Federal Reserve’s easy-money policies.
The Dow Jones Industrial Average closed down 164.62 points, or 0.5%, Wednesday, paring an earlier drop of as much as 587 points, as investors broadly retreated from riskier assets. The index has fallen in six of the past eight sessions.
The selloff extended to other digital currencies as well. Dogecoin fell 27% to about 35 cents, after earlier plunging as low as about 22 cents. Ether was 26% lower at $2,536, after earlier falling more than 40%.
Since early Tuesday, the total value of the cryptocurrency market has declined by more than $470 billion to about $1.66 trillion, according to CoinMarketCap. Bitcoin’s share has fallen to $721 billion.
Those losses are partially a result of how the market is structured. Crypto markets trade 24 hours a day seven days a week on hundreds of exchanges around the world. Once momentum accelerates in either direction there is no closing bell or circuit breaker to slow trading.WHAT’S NEWSWhat’s Behind Bitcoin’s Plunge?00:001xSUBSCRIBE
Moreover, the downturn fits a recurring pattern in digital currency’s short history. In 2017, Bitcoin’s price rose from $1,000 to nearly $20,000, peaking on the very day that exchange giant Groupe CME Inc. opened its much-awaited bitcoin futures market. At the time, that debut seemed like a sign of crypto’s arrival. Instead, it marked the end of the rally.
This year, bitcoin peaked April 14, coinciding with the stock-market debut of Coinbase Global Inc., the largest U.S. bitcoin exchange and the first significant player in the industry to go public. Much like the CME launch, in retrospect it seems to have marked the end of a rally.
At the time, that day felt like a victory lap for cryptocurrencies, said Oanda analyst Edward Moya. Coinbase fetched a mammoth $85 billion valuation, making it bigger than most companies in the S&P 500.
Now, however, that day feels like a different kind of turning point, he said. Coinbase’s stock has declined 41% from its opening price that day, including Wednesday’s 5.9% drop.
The selloff wreaked havoc across crypto markets. As of Wednesday afternoon in New York, about $9 billion of liquidations of leveraged bets had taken place in the previous 24 hours, according to data provider Bybt. The majority were of long positions in which traders bet on an increase in the price of bitcoin or another cryptocurrency. Such liquidations take place when the market moves against a trader who isn’t able to exit from the trade or post enough additional funds to meet the exchange’s margin requirements.
Some crypto exchanges reported glitches during the selloff, adding to the chaos. Coinbase said it was having intermittent downtime and some users were experiencing delays while trying to make withdrawals. Kraken, another U.S. exchange, reported users were having difficulty connecting to its app and website amid very heavy traffic.