THE cryptocurrency market has lost $US206 billion overnight in what traders are describing as a “cryptocalypse”, with bitcoin heading back towards its $US10,000 milestone first reached last November.
But it was smaller currencies including ripple, ethereum and bitcoin cash that were the hardest hit in the latest sell-off, which was sparked by fresh fears of a crackdown on virtual currencies by governments in South Korea and China.
At the time of writing, ripple was down nearly 50 per cent on the previous day, ethereum had lost nearly 34 per cent of its value, bitcoin cash was down nearly 37 per cent and bitcoin was down 27 per cent to just under $US10,200.
The market capitalisation of more than 1300 cryptocurrencies has dropped by around 30 per cent over the past 24 hours, down from $US702 billion to $US496 billion, according to Coinmarketcap.
“It’s been a cryptocalypse overnight with bitcoin and other virtual currencies coming under heavy selling pressure as the regulatory scrutiny intensifies not only in China and South Korea but across the globe,” Greg McKenna, chief market strategist at AxiTrader, said in a note on Wednesday. “The debate over zero or $US100,000 for bitcoin this year continues, however.”
Mr McKenna added that while retail investors had chased bitcoin out of fear of missing out, most institutional investors — with the exception of dedicated bitcoin funds and traders — would avoid the currency “because of fear of embarrassment and job loss”. “FEJL is as powerful a motivator as FOMO,” he said.
Shane Chanel, equities and derivatives adviser at ASR Wealth, said “not all hope” was lost, pointing out that every previous wild swing had been followed “by a rally more powerful than the last”.
He added that “every year over the last three years, the cryptocurrency market has witnessed strong corrections 22 to 23 days prior to Chinese Lunar New Year”.
It came amid reports China’s government was preparing to ramp up its crackdown on virtual currencies by blocking access to wallet services and exchange websites, according to Bloomberg.
China had already banned domestic exchanges and “initial coin offerings”, and earlier this month signalled its intention to crack down on bitcoin mining companies in order “guide” them towards an “orderly exit” from the country.
Meanwhile, South Korea’s finance minister said a crackdown on cryptocurrencies was still a possibility, describing the current frenzy as “irrational”.
Kim Dong-yeon said in an interview with local radio station TBS that banning trading in digital currencies was “a live option” subject to a thorough government review, the Associated Press reported.
“There are no disagreements over regulating speculation [such as using real-name accounts and levying taxes on cryptocurrency trading],” Mr Kim said, adding that shutting down digital currency exchanges was “a live option but government ministries need to very seriously review it”.
Last week, an announcement by South Korea’s justice minister that the country was preparing legislation to ban cryptocurrency trading sent shockwaves through the market.
A spokesman for the presidential office later issued a clarification. “Justice Minister Park’s comments related to the shutdown of cryptocurrency exchanges is one of the measures prepared by the Ministry of Justice, but it’s not a measure that has been finalised,” the statement said.
The news has caused outrage in South Korea, one of the world’s biggest cryptocurrency markets, with a petition opposing the crackdown attracting more than 200,000 signatures and a fresh poll showing President Moon Jae-in’s approval rating falling.
Reports have suggested up to three million South Koreans may have invested in cryptocurrencies, and the country is believed to account for one-quarter of the global market by transaction volume.
According to industry website CryptoCompare, more than 10 per cent of ethereum is traded in South Korean won, second only to US dollars which account for around 32 per cent. Nearly 14 per cent of ripple and 5 per cent of bitcoin is traded in won.
On bitcoin message boards, the mood was grim. “Gentlemen, it has been a privilege playing with you tonight,” wrote one Reddit user, attaching a video overlaying falling market graphs with the ending scene from the film Titanic.
“Survivors of the Titanic got compensated about $22,000 in today’s USD,” replied one user. “Guess that’s my new BTC sell point.”