Bitcoin price slumps, slamming brakes on New Year rally

Bitcoin price fell sharply on Monday, losing ground from a record high of $34,800 touched a day earlier, with traders citing volatility in highly leveraged futures markets.

Bitcoin fell over 14% after earlier touching as high as $33,670, wiping out more than half its 20% rally from New Year`s Eve to a record $34,800 on Sunday. Bitcoin was last down 9% at $30,077.

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A functioning cryptocurrency derivatives market has developed since 2017, with offshore exchanges still offering highly leveraged trading. Moves in such markets can have an outsized effect on bitcoin’s price.

"It`s the unwinding of some of that leverage," said Richard Galvin of crypto fund Digital Asset Capital Management.

Bitcoin`s record high came less than three weeks after it crossed $20,000 for the first time, on Dec. 16. The world`s biggest cryptocurrency more than quadrupled in price last year.

Traders said bitcoin`s drop on Monday was not unusual for the volatile asset, whose wild price swings have in part prevented it from becoming widely used as a currency.

"It`s still an unavoidably volatile asset by its nature," said Joseph Edwards of crypto brokerage Enigma Securities.

"For the most part, this looks like a purely technical move, signalled and caused by short-term euphoria," he added.

Fuelling bitcoin`s rally has been the perception it can act as a hedge against the risk of inflation as governments and central banks turn on the stimulus taps to counter the economic impact of the COVID-19 pandemic.

"Some of it is reflecting the fear of a weaker dollar," Bank of Singapore currency analyst Moh Siong Sim said of its most recent rally.

Bitcoin`s advance has also reflected expectations it will become a mainstream payment method. Its potential for quick gains has also attracted demand from larger U.S. investors.

The story has been taken from a news agency