Bitcoin’s seemingly unstoppable surge towards an all-time high and a $20,000 price tag went into reverse as holders tried to cash in their gains for a profit.
The price of the cryptocurrency plummeted more than 12 per cent over the last 24 hours from a peak of $19,374 a coin on Wednesday to $16,858, according to figures from Coindesk.
Fellow cryptocurrencies like ethereum and ripple have also plunged in price over the last 24 hours, while bitcoin’s fall was its sharpest since the start of September.
Bitcoin plunged by more than 12% in the last 24 hours just as it looked set to hit an all-time high
It had looked set to break its all-time high of around $19,500, set in December 2017, driven by a series of good news stories, endorsements from institutional investors and continued money printing by central banks.
The fact the price of the cryptocurrency had risen from just under $8,000 in January to the verge of $20,000 a coin without serious interest from casual investors had led some to argue the boom this time around was here to stay for a while yet.
This is Money has previously reported on the factors driving the cryptocurrency’s rise, including endorsements by the likes of PayPal and JP Morgan, which said it could possibly compete with gold as an alternative store of value.
However, this positivity has been somewhat dented by the sudden plunge in the bitcoin price, which appeared to be the result of a massive sell-off by high net worth holders of the cryptocurrency.
The sharp drop is yet more proof of the cryptocurrency’s volatility and why This is Money warns casual investors looking to buy into it that they need to do their research and be careful beforehand.
According to bitcoin analysts Glassnode, the number of investors holding at least 1,000 bitcoin reached an all-time high this week, with the concentration of large sums of the cryptocurrency in the hands of a small number of investors giving them a significant influence on the market.
Another analyst, Ki Young Ju, wrote on the social media platform Twitter that these holders of large sums of bitcoin had sold off their holdings, causing the price to fall.
Bitcoin has been on a tear since the end of the summer and is still massively up on where it was at the start of this year
And one of the most well-known cryptocurrency exchanges, Coinbase, said traders were being hit by connectivity issues as they tried to make purchases or sell-off their holdings. The San Francisco-based exchange said it had found and fixed the problem.
Responding to the sudden drop, Glen Goodman, the author of the book The Crypto Trader, said: ‘When Bitcoin approached $20,000 in 2017, more people were queueing up to buy it than ever before.
‘Many of those buyers have been holding their investment – in varying degrees of misery – ever since.
‘The pressure now, not least from their long-suffering partners, is to sell and finally break even on their investments.
‘With their fingers hovering over the “sell” button, when the price started retreating slowly down to $19,000 and then $18,500, it led to a flurry of panic sellers grabbing their chance to break even, and those sellers caused the price to crash fast.’
Simon Peters, a crypto analyst at the investment platform eToro, also suggested some investors who were finally above water after three years had chosen to cash in their profits.
He said: ‘Of all the bitcoin positions opened on eToro at the time of the bull run in December 2017, 19 per cent of those that remain in November 2020 have been closed this month – which suggests that clients have been eagerly awaiting a chance to recoup their initial investments. This week, it seems, many have done so, creating a price slide in the process.’
However, both still remained positive on the cryptocurrency’s future prospects, with Goodman saying the long-term picture was ‘very positive’, despite the possibility of ‘a lot more price volatility in the near future’.
He added: ‘This appears so far to be a healthy correction in a big bull market. In my opinion, only a fall to $10,000 would put that bullish narrative in question.’