The cryptocurrency plunged as much as 40 percent on Thursday to around $3,850, its lowest level since March last year and the biggest one-day drop in seven years.
It came on the same day that Wall Street faced its worst day of trading since 1987’s Black Monday, indicating that Bitcoin is moving with the markets, rather than operating as a safe-haven similar to gold, as its boosters tout.
‘The narrative that BTC is a ‘safety asset’ and is more like a ‘digital gold’ has yet to get proper traction in mainstream markets outside of the crypto community,’ said Ben Sebley, partner at BCB Group, a cryptocurrency brokerage.
Bitcoin surged by more than a fifth on Friday, reversing some of its heavy losses the day before but still leaving the cryptocurrency down nearly 30 percent since the start of the week.
The steep drop has pushed Bitcoin deep into negative territory for 2020, after a strong start to the year, underscoring its challenges in becoming a usable currency.
In the first six weeks of 2020, bitcoin rose by nearly half as investors bet that a combination of arcane tech factors in its code and expectations of mainstream acceptance were leading to a repricing.
Bitcoin’s plunge this week outpaced sharp losses for assets from stocks to oil as the pandemic wreaks havoc on the daily life of millions.
‘We’ve seen de-risking across all asset markets,’ said Jamie Farquhar, portfolio manager at London-based crypto firm NKB. ‘Bitcoin is certainly not immune to that.’
As trader Peter Brandt put it on Twitter: ‘An old adage explaining why a collapse of one market infects all others. ‘When the cops raid the whore house, everyone is arrested, even the piano player’.’
A five-day view of the price of Bitcoin shows the stunning plunge in value this week
A one-year view of Bitcoin price show’s this week’s drop in context
Bitcoin’s slump underlines nagging questions over its practicality as a currency, or as a stable store of value. Those concerns, as well as worries on regulation, have kept mainstream investors away.
Prone to wild and often inexplicable price swings, it has through its 12-year life failed to take off as a means of payment, its use instead mainly limited to speculation.
Cryptocurrency trader and technical analyst Eric Thies proposed that that Bitcoin’s plunge is related to the heavy investments that hedge funds and other traditional financial players have made in the crypto space.
‘This is the first market cycle where the weight of the money will potentially be held by institutions,’ Thies told Coin Telegraph.
‘That means that Bitcoin is now tied to the traditional markets, and far from being a safe haven when it comes to the emotional cycles of humans, and our instinct to save our money when we become fearful.’
Other major cryptocurrencies, which tend to move in tandem with Bitcoin, also suffered sharp falls.
No. 2 coin Ethereum fell 27 percent, while third-largest coin XRP, used in U.S. start-up Ripple’s payments system, tanked 21 percent.