A dip for bitcoin has now accelerated into a week-long rout, and selling pressure doesn’t seem to have stopped. The plunge is no accident, market participants said.
Trading action has been dominated by money-losing funds liquidating holdings ahead of the new year, and people using stop-loss orders to get out of the market before it completely collapses.
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The digital coin has plunged more than 25% in the past five days, going as low as $4,237 on Tuesday, before rebounding to $4,500 by midday in New York.
Bitcoin had mostly stayed above $6,000 in recent months after starting the year at $15,000.
It’s not clear exactly what sparked the selloff last week. Controversy over a Bitcoin spinoff called Bitcoin Cash that “forked” to create another new coin may have rattled investors and diverted the attention of the miners who keep the whole system running.
And the Securities and Exchange Commission has announced enforcement actions in recent days. Last week, the agency announced its first enforcement action against a token exchange for failing to register.
“The SEC enforcement actions over the past week are a reality check for the many projects that believed they would be exempt from security status,” wrote Ryan Taylor, CEO of Dash Core, a digital coin for payments that is now the twelfth-most-valuable cryptocurrency, in an email to Barron’s.
Regardless of the cause, the selloff only sparked more selling, in part because funds that invest in crypto are flailing and need to stabilize themselves.
“From our perspective, talking to our institutional customers, there are a lot of vintage 2017 Bitcoin funds that are clearly underwater for the year,” wrote Paul Chou, the CEO of trading platform LedgerX, which offered the first bitcoin options and swaps last year. “Some of these funds are liquidating and shutting down, and others are closing out positions for tax purposes before the end of 2018.”
Other investors appear to have sold automatically because of stop-loss programs, wrote Mati Greenspan, senior market analyst at trading platform eToro.
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