Bitcoin steadies after biggest slump since March's meltdown

[LONDON] Bitcoin and other digital coins steadied on Friday after posting some of the biggest declines since the onset of the pandemic, a selloff that stoked fresh questions about this year's boom in cryptocurrencies.

Bitcoin climbed above US$17,400, following a slide of as much as 14 per cent to US$16,227 on Thursday. Fears over tighter crypto regulations and profit-taking after a frenetic rally were among the reasons cited for the tumble.

"After big rallies in shares and various other assets, they are all vulnerable to a bit of a pause," said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. "But Bitcoin more than most, as it surged higher far more and had become far more frothy with speculative interest." The slump pared Bitcoin's rally this year to about 140 per cent, a climb that's split opinion. Crypto believers tout a broadening investor base and the search for a hedge against dollar weakness amid loose monetary policy as reasons for a durable boom. Set against that is a history of big swings, including the run up to a record three years ago that was followed by a spectacular bust.

Proponents of digital assets say the current focus on cryptocurrencies compared with 2017 is different because of growing institutional interest, for instance from the likes of Fidelity Investments and JPMorgan.

Just this week, Van Eck Associates launched a Bitcoin exchange-traded note on the Deutsche Boerse Xetra exchange. In October, PayPal Holdings said it would allow customers access to cryptocurrencies.

Others see signs of retail investors piling in to chase momentum for fast gains, storing up an inevitable reckoning. The rout in Bitcoin began just hours after it rose to within US$7 of its record high of US$19,511 set in December 2017.

Concern about potential US crypto rules help explain Thursday's price drop across most major digital assets, said Ryan Rabaglia, global head of trading at OSL brokerage in Hong Kong.

"It's also not unusual to see a short-term pullback following periods of significant, accelerated gains as traders look to take profits before resetting once volatility subsides," he said. "Once the dust settles, we're back to business as usual with all medium to long-term bullish indicators still in play."

Bitcoin rose 1.3 per cent to about US$17,278 as of 6.50 am Friday in London, while Ether advanced 2.5 per cent and XRP - which slumped 19 per cent Thursday - climbed 7.5 per cent, according to prices compiled by Bloomberg.

Profit-taking was inevitable and there are still factors in favour of Bitcoin as an asset class, according to Byron Goldberg in Sydney, who runs the Australian operations for Luno, the cryptocurrency exchange and trading platform.

"It continues to attract both institutional and retail attention as a 21st-century substitute to the gold play," he said.

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