Bitcoin value slumps below $35,000
The three most actively traded cryptocurrencies all shed 15% of their value in trading on Monday
The value of major cryptocurrencies slumped for the second day in succession on Monday, with the biggest token Bitcoin dropping 20 per cent to $32,475 by mid-morning before rallying back above $33,719 at 4.10pm UAE time, down 15 per cent for the day. Other major cryptocurrencies including XRP and Ethereum were also 15 per cent and 8 per cent lower, respectively.
"It is not a surprise that Bitcoin has entered a correction phase, shedding as much as 22 per cent since posting a record high of almost $42,000 last Friday," Channel Yeung, a market analyst at brokerage FXTM told The National.
He said the Relative Strength Index, a measure of whether an asset is overbought or oversold, reached 95 last week – a level not seen even during Bitcoin's previous spike in late 2017. Typically, an RSI above 70 indicates an asset has been overbought, while one below 30 indicates it has been oversold.
When Bitcoin previously breached an RSI of 90 in 2017, a 30 per cent downward readjustment followed, Mr Yeung said.
"Therefore, Bitcoin may still have room to drop further to $30,000 level in the upcoming days," he added.
Charles-Henry Monchau, chief investment officer of Switzerland's Flowbank, said he believed the sell-off in Bitcoin had been motivated by some investors taking profits given the recent spike in valuation. The world's biggest cryptocurrency had witnessed a five-fold increase in value in the past 12 months to close above $40,239 at the end of last week.
He also highlighted the fact that Coinbase, the world's second-biggest crypto exchange by traded value, had periods where it went offline during two of the past three trading days, which "might have created a bit of panic and thus acted as a trigger for the decline".
The UK's Financial Conduct Authority on Monday warned consumers of the danger of investing in crypto assets or of investments linked to them through companies that are promising high returns. Such investments generally involve high levels of risk and are not likely to be covered by the country's Financial Services Compensation Scheme if anything goes wrong, the regulator warned.
"If consumers invest in these types of product, they should be prepared to lose all their money," the FCA said.
It warned that some of the products being offered are complex, there is no guarantee they can be converted back into cash and that the assets themselves are subject to "significant price volatility".
Monthly volatility for Bitcoin reached more than 116 per cent on Monday, according to an index calculated by the Bitmex exchange.
Monday's plunge in Bitcoin's value "was another reminder that cryptocurrencies are not for the faint-hearted", Milan Cutkovic, a market analyst at brokerage Axi, said.
"The euphoria is still running strong, but the question is whether investors will manage to keep a cool head even during a large correction or if they will rush for the exit door?"
Mr Yeung said the decline in Bitcoin could in part be attributed to a rebound in the value of the US dollar, which made gains against the pound, the euro and most other major currencies on Monday.
Updated: January 11, 2021 06:02 PM