Picture: 123RF/KONSTANTIN SHAKLEIN
Picture: 123RF/KONSTANTIN SHAKLEIN

Tokyo — Bitcoin recovered marginally on Thursday from the previous session’s brutal slide to four-month lows but was weighed down by concerns over tighter regulation in China and unease over massive leveraged positions in the cryptocurrency world.

Bitcoin, the biggest and most popular cryptocurrency, rose 8.75% to touch $40,000, albeit briefly, after plunging 14% on Wednesday to its lowest level since late January.

Smaller rival ether was up 3% at $2,517, but in extremely volatile trading after its 28% tumble on Wednesday.

Wednesday’s declines in both digital assets were their biggest daily percentage moves in more than a year as investors rushed to exit trades that until recently were heartily outperforming traditional markets such as stocks and bonds.

The latest catalyst was a statement by Chinese financial industry groups on Tuesday banning institutions from offering cryptocurrency registration, trading, clearing and settlement.

But bitcoin had been under pressure for almost a week after a series of tweets from carmaker Tesla chief Elon Musk, a major cryptocurrency backer, chiefly his reversal on Tesla accepting bitcoin as payment.

While Beijing has taken steps before to block access domestically to cryptocurrency exchanges, its latest directive was broader.

It bans the use of cryptocurrencies in payment and settlement, and prohibits institutions from providing crypto-related products or exchange services between cryptocurrencies and the yuan or foreign currencies.

Chris Weston, head of research at brokerage Pepperstone in Melbourne, pointed to how $9.13bn of cryptocurrency positions had been liquidated across exchanges over 24 hours, and $532bn in total volume transacted.

“It’s too early to say if the rebound we’ve seen off the lows in crypto has legs, but as we roll into Asian trade, I question if we will get a chance to catch our breath or is there more volatility in store?” he said.

The slide forced some investors to close out leveraged positions in cryptocurrency derivatives, which caused prices to fall further and knocked digital assets down into a lower trading range, traders said.

James Quinn, MD at Q9 Capital, a Hong Kong-based cryptocurrency private wealth manager, said there wasn’t that much evidence of extended leverage in these cryptos and that the selling reflected huge crowded positions in ether.

Ether was up six-fold until the sell-off, stealing a march over bitcoin in 2021 after being widely used in non-fungible tokens on digital art platforms.

“To me, this is just as much of a spot-led sell-off as it is a reflection of people deleveraging futures and swaps products,” Quinn said.

“Sometimes a market event is looking for a cause. I think this is about positioning. Over the long term, maybe it’s positive because a very crowded trade from a lot of new entrants means there are a lot of new entrants.”

Bitcoin may fall a little further but is likely to stabilise around $30,000, said Justin d’Anethan, head of exchange sales at Diginex, a Singapore-based digital asset market.

Digital assets have been on a wild ride in 2021 as a growing number of retail and institutional investors bet that bitcoin and other cryptocurrencies will gain mainstream acceptance, but large price swings are common. Bitcoin is up 27% so far in 2021, and intraday volatility has spiked to near 300% this week.

Technical factors appeared to have played a part in bitcoin’s decline and seemed to accelerate once it fell below its 200-day moving average, a chart position traders follow.

Amid the volatility, cryptocurrency trading platforms Coinbase and Binance said they were investigating or experiencing some service issues. Shares in Coinbase COIN.O dropped 5.9% on Wednesday.

Prominent crypto backers such as MicroStrategy CEO Michael Saylor, Ark Invest’s ARKK.P CEO Cathie Wood and Musk indicated their support for bitcoin as it plunged on Wednesday.

While some retail traders saw missed opportunities in the slide, others saw the rout as a chance to pick up digital assets on the cheap.

“Bitcoin broke down technically,” said Michael Oliveri, an independent New York-based equity trader who was formerly a partner at First New York Securities.

“It was an easy short set-up actually. I’m annoyed I didn’t short it. I wouldn’t chase it now.”

Milko Markov, an independent London-based trader, said he had been buying ether.

“Those with a bit more experience in the crypto market know two cardinal rules: don’t leverage and dollar cost average,” he said. 

Reuters

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