Turmoil engulfed cryptocurrency markets again Tuesday, with every major coin extending a rout that has rocked confidence in the nascent asset class just as U.S. regulators try to close in on alleged fraud.
Bitcoin tumbled below $4,225 to a 13-month low before regaining some ground. The slide helped fuel a sell-off among rival tokens ether, litecoin and XRP, which pared an earlier loss that reached 17%.
After months of enjoying relative stability, cryptocurrency bulls are left reeling by a sudden market downturn in November and increased regulatory reviews. Digital assets have now lost almost $700 billion of market value since crypto mania peaked in January, according to CoinMarketCap.com. Trading on futures markets, where investors can bet against bitcoin, has soared.
The trigger for the latest sell-off is unclear, but it has coincided with a “hard fork” of the cryptocurrency named bitcoin cash. The move — which split the offshoot of the original bitcoin into two — has underscored the sometimes chaotic nature of a crypto community racked by infighting. Bitcoin, which began the year above $14,000, broke through its floor of about $6,000 last week.
“If you significantly slice through a level like $6,000, people don’t have a lot of protection below it — and then you see a lot of stop-loss selling, which exacerbates the move,” said Marc Ostwald, global strategist at ADM Investor Services International in London. “It doesn’t help that we have a genuinely risk-averse environment, with equities and credit under pressure.”
Bitcoin, the biggest digital coin, was down 7.9% Tuesday morning. Ether, litecoin and XRP all fell at least 8.8%.
Regulatory concerns have also weighed on sentiment. On Friday, the U.S. Securities and Exchange Commission announced civil penalties against two cryptocurrency companies that didn’t register their initial coin offerings as securities. And on Tuesday, Bloomberg reported that the U.S. Justice Department is investigating whether last year’s epic rally was fueled in part by manipulation, with traders driving up bitcoin by using tether — a popular but controversial digital token.
“The whole move by the SEC has seemed like a nail in the coffin, and with talk about price-rigging the market, it’s getting nasty,” ADM’s Ostwald said. He said the approach of bitcoin futures expiration can also give gyrations to the market.
The combined open interest in bitcoin futures on exchanges run by CME Group Inc. and Cboe Global Markets Inc. swelled to the equivalent of 22,266 bitcoins on Monday, an all-time high. CME’s current contract is set to finish trading in 10 days. Volume in the contracts, which enable institutional investors to profit from declines in cryptocurrencies, jumped to the highest level since July.
The rout may vindicate Jamie Dimon, JPMorgan Chase & Co.’s chief executive.
In September 2017, Dimon famously called bitcoin a “fraud” and threatened to fire any employee caught trading it. While the cryptocurrency briefly fell on his remarks, it went on to rally more than fourfold in three months as crypto mania swept the globe. Dimon became a favorite punching bag for bitcoin bulls, even after saying later that he regretted the comments and that he believes in the digital asset’s underlying blockchain technology.
Now the cryptocurrency has dived back to the price it had the day Dimon issued his warning. Many of bitcoin’s peers have sunk even further, with the market value of all virtual currencies tracked by CoinMarketCap.com tumbling some $700 billion from an all-time high in January.