The slide in cryptocurrencies accelerated, with bitcoin falling below the $5,000 mark Monday for the first time since October 2017, amid speculation that increased regulatory scrutiny will prompt issuers of initial coin offerings to liquidate holdings.
Bitcoin declined as much as 12% to $4,796, falling for an eighth consecutive day in what is the longest string of losses on record for the 10-year-old digital token. So-called alternative coins slumped even more, with ether and litecoin both tumbling as much as 15%. XRP, the token associated with ripple, was the lone gainer among major digital currencies.
On Friday, the Securities and Exchange Commission announced its first civil penalties against two cryptocurrency companies that didn’t register their initial coin offerings as securities. Airfox and Paragon Coin Inc. will each have to pay $250,000 in penalties to compensate investors and will also have to register their digital tokens as securities.
“The sell-off is related to enforcement, which is almost certainly underway,” said Justin Litchfield, chief technology officer at ProChain Capital. “Projects are being made to return investor money, which, after having spent a ton of money marketing their $100-million [initial coin offering] on a lavish, party-filled road show that was the norm for this vintage of [initial coin offerings], will be tough.”
Volatility has returned to cryptocurrencies, with the largest tokens shedding billions of dollars in market value since the hard fork of the currency known as bitcoin cash debuted last week. That came as two software-development factions failed to agree on a way to upgrade the offshoot of the original bitcoin, leading to a computing-power arms race. (Bitcoin cash initially split from bitcoin in August 2017. The two coins ended up being worth more than bitcoin alone, benefiting investors. As a result, that split led to a so-called forking craze, in which multiple developer teams rushed to get out new versions such as Bitcoin Gold by tinkering with the software code.)
The cryptocurrency industry has now lost more than $660 billion in value from a January peak, according to data from CoinMarketCap.com. Bitcoin is down more than 70% from its December 2017 high, the data show.
Thomas J. Lee, managing partner at Fundstrat Global Advisors and a longtime crypto bull, slashed his year-end price target for bitcoin to $15,000 from $25,000. The target is based on a fair value multiple of 2.2 times the break-even cost of mining, which the firm pegs at $7,000, according to a report last week.
Bitcoin bulls may be able to take heart in some technical measures. Based on the GTI Global Strength Indicator, bitcoin is flashing oversold for the first time since August and its most oversold level this year. In addition, it is testing its 23.6% five-year look back Fibonacci level of $4,727 as its next support.
“It’s always suspect guessing the cause of short-term price movements, but it seems likely that a lot of what’s going on now is [initial coin offerings] trying to liquidate all their cryptocurrency for cash to make off with the goods before the SEC comes down on them,” said Bram Cohen, co-founder of the proposed digital currency chia, which is planning an initial public offering.