The Bitcoin Selloff You Knew Was Coming Has Arrived

Hey, it’s not like nobody could see this coming.

The parabolic gains in bitcoin and digital currencies this spring have reversed course sharply in the last day. Bitcoin was down as much as 12% on Thursday, pulling down virtually every of the “altcoins” along with it. Since cresting over the $ 3,000 mark on Monday, bitcoin has fallen about 27%. By traditional capital market standards, that drop would constitute a new bear market, but bitcoin is not a traditional capital asset.

It’s recovered a bit of ground, most recently down 7.4% on the day at $ 2,310.

The top 40 cryptocurrencies tracked by the website Cryptocurrency Market Capitalizations were all down on Thursday. Ethereum was down 16% at $ 313, after trading above $ 400 earlier this week. Ripple was down 12%, ethereum classic was down 14%, litecoin was down 7%.

The past few months have seen significant inflows of new money into the sector, driven by several factors, like new rules for bitcoin put in place in Japan, and the rising popularity of a new fund-raising method called the initial coin offering, or token sale.

Japan’s bitcoin regulations, set by the country’s Financial Stability Agency, went into effect on April 1, when bitcoin was trading around $ 1,000. Those rules gave bitcoin official recognition, and gave retail Japanese investors an excuse to tip a toe in the cryptocurrency waters. Which they did. The bitcoin-yen trading pair quickly became the second largest in volume terms, behind the bitcoin-dollar. Trading also picked up in South Korea, with the bitcoin-won pair becoming the third largest.

This influx of new money fueled the surge. From April 1 through Monday, bitcoin’s price tripled in what was a manic rally even by its own standards. It wasn’t just bitcoin. The new money was coming in at the same time as a new kind of investment was emerging – the initial coin offering. A cross between crowd-funding and standard public offerings, these new assets were tied to startups and services, like the online betting site Gnosis, which raised about $ 12 million dollars, in 12 minutes. A firm named Bancor this week said it raised $ 140 million.

[wsj-responsive-more-in tag=”Bitcoin” category=”” ]

While the selloff was expected by many, there is a larger issue at play as well – the possibility that bitcoin may split in two over a debate about network expansion. In recent days, a number of players in the industry, including a major mining company called BitMain, have raised the prospect of “forking” bitcoin’s code, creating two nearly identical versions of the same program. This would split bitcoin between backers of a slower, low-volume network, and one that could handle more transactions at a faster clip.

It’s an argument that’s been stewing internally for two years now. The difference is that previously, nobody thought an actual split was possible. In the last few days, that seems to have changed.

“It should never have gotten to this,” Vinny Lingham, an investor and founded of startup Civic, wrote on Twitter, “but the rising price has forced this outcome. It’s happening.”

For more insight into stocks and bonds, deals and dealmakers, the economy and business, be sure to subscribe to the MoneyBeat podcast.


MoneyBeat » Bitcoin

Leave a Reply

Your email address will not be published. Required fields are marked *