- Bitcoin fell by over 10% on Thursday as cryptocurrency traders cashed in on holdings whose values have gained 20% this month alone.
- The digital token looked set to hit a record high of $20,000 this week.
- Traders said that after such a swift rally, several large investors booked profits on their holdings, many of which may have been moved to exchanges to secure a better price.
- “It feels more and more like we’re hitting a Bitcoin tipping point,” a crypto trader said. “In fact, a cooldown is to be expected.”
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Bitcoin slid by more than $2,000 on Thursday in its biggest one-day drop in nearly three months.
The price of the world’s largest cryptocurrency had fallen by 11%, to $16,725, as of 8:45 a.m. GMT. The price is still up by about 21% this month and by 138% on the year. It hit a peak of $19,497 on Wednesday but did not break the record of $19,666 set in December 2017.
The price correction may also be a function of crypto traders moving larger volumes of bitcoin to exchanges — where they can be more easily sold at a better price — when the token approached $20,000.
“It feels more and more like we’re hitting a Bitcoin tipping point,” said John Kramer, a trader at the crypto trading firm GSR. “In fact, a cooldown is to be expected. But with more well-known fund managers and institutions re-examining their Bitcoin theses every day, it’s getting harder to not take the asset more seriously.”
Kramer said many investors feel that the stock market is utterly divorced from economic reality right now. The S&P 500 hit record highs this week as US COVID-19 cases surged and as many as 2,200 Americans were dying every day from the virus. Prospective returns from traditional markets are low, while the risks are quite high, he said.
Part of the rally in cryptocurrencies in the past few weeks has stemmed from the fact that they — unlike equities, bonds, gold, or oil — have very little correlation to the economy, interest rates, or even other asset classes.
“The stimulus response to the pandemic has stoked lingering concerns among several large asset managers about the devaluation of the US dollar, shining a light on Bitcoin’s finite supply,” Kramer said. “The risk-return relationship for digital assets is now uniquely poised as an attractive alternative that is uncorrelated to wider macro and increases the diversification of a traditional portfolio.”
Despite the sell-off on Thursday, Bitcoin may soon hit $20,000, said Ki Young Ju, the creator of CryptoQuant, an on-chain analytics firm.
“All Exchanges Inflow Mean increased a few hours ago,” he said in a tweet. “It indicates that whales, relatively speaking, deposited $BTC to exchanges. But long-term on-chain indicators say the buying pressure prevails. I still think we can break 20k in a few days.”
Smaller “altcoins” have benefited from the push into cryptocurrencies. Ethereum is still up by about 30% this month, while XRP has more than doubled in value.