Cryptocurrencies fluctuate as regulatory spotlight increases
New York/Hong Kong: Cryptocurrencies continued to whipsaw investors, sending Bitcoin to its lowest level since October before recovering, as worries over tighter regulation by US authorities and central bankers elsewhere gave traders fresh reasons to exit after a brutal start to 2018.
The selloff has now knocked about half a trillion dollars from digital coins since early January. That’s shaken a nascent market whose core attraction—anonymity and decentralization—is being challenged as never before by regulators.
Prices steadied as Securities and Exchange Commission chairman Jay Clayton reiterated in a Congressional hearing that he believes every initial coin offering he’s seen is a securities sale and the agency already possesses the regulatory oversight needed for enforcement.
“I don’t see anything they said so far crashing the market,” said Jesse Overall, an attorney at Clifford Chance, in an e-mail. “If anything, their acknowledgment that there’s a regulatory gray area (as opposed to being outright illegal under present law) with respect to cryptocurrencies is a sort of reprieve that could be beneficial to the market.”
Tuesday’s US hearings follow comments from Bank for International Settlements general manager Agustin Carstens that there’s a “strong case” for authorities to rein in digital currencies and that central banks—along with finance ministries, tax offices and financial market regulators—should police the “digital frontier”.
“Novel technology is not the same as better technology or better economics,” Carstens said in a speech in Frankfurt. He said Bitcoin may have been intended as an alternative payment system with no government involvement, yet it has become “a combination of a bubble, a Ponzi scheme and an environmental disaster”, in reference to its electricity use.
The biggest virtual currency sank as much as 17% to as low as $5,922, before trading little changed at $7,131 as of 11.26am in New York, according to Bloomberg composite pricing. Alternative coins Ripple, Ether and Litecoin also fell at least 3.5% before recovering.
“Crypto is being driven by daily negative news,” said Craig Erlam, a senior market analyst in London at online trading firm Oanda Corp. “There’s regulation speculation in India, South Korea, and the US. And then there’s hacking, the Facebook situation and finally the Tether story has people worried as well.”
Cryptocurrencies tracked by Coinmarketcap.com have lost more than $500 billion of market value since early January as governments clamped down, credit-card issuers halted purchases and investors grew increasingly concerned that last year’s meteoric rise in digital assets was unjustified. This week’s selloff has coincided with a rout in global equities, with markets in Asia extending losses on Tuesday following a white-knuckle day for US stocks.
Some technical indicators suggest the rout in Bitcoin has further to go. The cryptocurrency’s Moving Average Convergence Divergence indicator, the most profitable of 22 trading signals tracked by Bloomberg over the past year, flagged further downside after turning bearish in December.
Bitcoin also dipped below its 200-day moving average for the first time in more than two years on Tuesday. The last time that happened, in August 2015, the cryptocurrency sank as much as 24% over the following two weeks.
“We’re possibly heading back to where the true value of what Bitcoin should be,” Oanda’s Erlam said. Bloomberg