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JOHANNESBURG — Looking at the Bitcoin price chart, it’s definitely started to resemble the classic early 2000s bubble chart. And if you put the two charts side-by-side, you’ll realise that Bitcoin may still have a much longer way to fall. But there’s no doubt that blockchain technology still has massive value over the long term in terms of its potential to change our financial system. Perhaps once the dust has settled, good buying opportunities may exist. – Gareth van Zyl
(Bloomberg) – The slide in cryptocurrencies accelerated Monday, with Bitcoin piercing the $5,000 mark for the first time since October 2017, amid speculation that increased regulatory scrutiny will prompt issuers of initial coin offerings to liquidate holdings.
Bitcoin fell below 5K for the first time this year: pic.twitter.com/gjgLgS4dVt
— Michael McDonough (@M_McDonough) November 19, 2018
Bitcoin declined as much as 14 percent during US trading hours, falling just below $4,700 before bouncing back slightly. The largest digital currency was holding steady around $4,862 at 10:52am in Hong Kong. Rival coins Ether and Litecoin were largely flat after both tumbled as much as 16 percent overnight.
On Friday, the SEC 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 selloff 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 ICO on a lavish party-filled road-show that was the norm for this vintage of ICOs, will be tough.”
Speculation that the sell-off was triggered by the SEC ruling may be overblown. Many of the ICOs done have already drained their wallets and likely converted their cryptocurrency into fiat, according to researcher Elementus.
Volatility has returned to cryptocurrencies, with the largest tokens shedding billions in market value since the hard fork of 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.
The cryptocurrency industry has now lost more than $670 billion in value from a January peak, according to data from CoinMarketCap.com. Bitcoin is down more than 70 percent from its December 2017 high, the data show.
Thomas J. Lee, managing partner at Fundstrat Global Advisors and a long-time 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 breakeven 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 percent 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 ICOs 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.
No end in sight for crypto sell-off as Bitcoin breaches $4,250
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 percent.
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.
While the trigger for the latest sell-off is unclear, it has coincided with a “ hard fork” of 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 around $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 percent as of 7:12am in New York. Ether, Litecoin and XRP all fell at least 8.8 percent.
Regulatory concerns have also weighed on sentiment. On Friday, the US 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 US Justice Department is investigating whether last year’s epic rally was fuelled in part by manipulation, with traders driving up Bitcoin with 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,” said ADM’s Ostwald. 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 allow institutional investors to profit from declines in cryptocurrencies, jumped to the highest level since July.