Cryptocurrency bubble wipes $600bn off digital tokens in a week

*China’s warning against uncertainties in the virtual currencies market and Musk’s Bitcoin criticism have knocked cryptocurrencies as Bitcoin is down almost 40 percent from its mid-April $64,870 record

Isola Moses | ConsumerConnect

Sequel to China’s warning and Musk’s Bitcoin criticism that have buffeted cryptocurrencies, virtual currencies are retreating so broadly and sharply, as the development is testing the durability of the cryptocurrency boom.

ConsumerConnect reports the value of more than 7,000 tokens tracked by CoinGecko has shrunk more than $600 billion in the past week to $1.9 trillion.

The crypto bubble that inflated Bitcoin’s value above $1 trillion and added billions to nonsense digital tokens overnight is fast bursting.

Bitcoin, the largest cryptocurrency, slid some 11 percent Wednesday, May 19, 2021, to break below $40,000 and is now about $25,000 off its record high set in April.

Report indicates multiple factors really are at play, ranging from criticism of the environmental impact of Bitcoin’s energy usage by onetime proponent Elon Musk, to the risk of a regulatory squeeze on what some have called the Wild West of investing. Digital tokens are also said to have delivered gains so fat, that some traders may have been taking profits in recent times.

Jeffrey Halley, Senior Market Analyst at Oanda, wrote in a note, that the $40,000 mark is a “critical make-or-break pivot level” for Bitcoin and a decline to just below $30,000 isn’t out of the question, agency report stated.

The publication had reported early April the value of cryptocurrencies breached $2 trillion for the first time, doubling in about two months on optimism institutional investors were increasingly interested.

Nevertheless, the current weakness has erased over $600 billion, according to report.

Breaking $40,000

Bitcoin’s downside gap from 120-day moving average biggest since 2020

Bitcoin tested its 200-day moving average, and its discount to the 120-day average is the biggest since last year, according to Mike McGlone, a commodity strategist at Bloomberg Intelligence in New York.

He sees the Bitcoin price settling around the 2021 average of approximately $49,000.

Futures

Bitcoin futures trigger a bearish technical signal. In Bitcoin futures, technicians see a bearish head-and-shoulders pattern, which could point to more weakness ahead.

Bitcoin Versus Gold

Bitcoin-to-gold ratio down to February low amid crypto slide. The ratio of Bitcoin’s price relative to gold has dropped to the lowest since early February. That’s come amid greater caution about speculative assets as well as the post-pandemic economic recovery.

Bitcoin’s proponents argue it’s a modern-day store of value, a claim belied by the token’s volatility.

Ether Trade

Ether’s advance was overshadowing Bitcoin but has stalled. After Bitcoin pulled back from a mid-April high, an ongoing rally in Ether ─ the second-largest cryptocurrency ─ drew attention.

But that has also stalled. Chris Weston, head of research at Pepperstone Group Limited, in Melbourne, wrote in a note Monday, May 17 that he was closing a short Bitcoin/long Ether trade as the “dust really needs to settle.”

Largest Fund

Biggest traded Bitcoin fund near record discount to net asset value. The Grayscale Bitcoin Trust, the largest Bitcoin fund, is sitting on close to a record discount to net asset value.

Report said that gap could disappear if it converts as planned to an exchange-traded fund.

However, risks for a wider discount include uncertainty over whether US officials will ever allow Bitcoin ETFs.