Bitcoin roller-coaster faces new challenge — regulation

By Eric Lam

Cryptocurrencies continued to hurt whipsaw investors, sending bitcoin to its lowest level since October before recovering, as worries over tighter regulation by US authorities and central bankers elsewhere gave traders fresh reasons to exit after a brutal start to 2018.

The selloff has now knocked about $500bn (€402bn) half a trillion dollars from cryptocurrencies since early January.

That’s shaken a nascent market whose core attraction — anonymity and decentralisation — is being challenged as never before by regulators.

The latest broadside came from the Bank for International Settlements general manager Agustin Carstens who said there’s a “strong case” for authorities to rein in digital currencies and that central banks — along with finance ministries, tax offices, and financial market regulators — should police the “digital frontier”.

“Novel technology is not the same as better technology or better economics,” said Mr Carstens.

He said bitcoin may have been intended as an alternative payment system with no government involvement, but it has become “a combination of a bubble, a Ponzi scheme, and an environmental disaster”, in reference to its electricity use.

Bitcoin, the biggest virtual currency, sank as much as 17% as low as $5,922, before trading little changed. Alternative coins ripple, ether, and litecoin also fell at least 3.5% before recovering.

“Crypto is being driven by daily negative news,” said Craig Erlam, a senior market analyst at online trading firm Oanda.

“There’s regulation speculation in India, South Korea, and the US. And then there’s hacking, the Facebook situation, and finally the tether story has people worried as well.”

The slump in cryptocurrencies got fresh momentum after a Bloomberg News report that the top US market watchdogs plan to ask Congress to consider national oversight for digital-currency trading platforms.

“The market is feeling regulatory pressure,” said Zhou Shuoji, of FBG Capital, a Singapore-based cryptocurrency investment company.

Cryptocurrencies have lost over $500bn of market value since early January as governments clamped down, credit-card issuers halted purchases, and investors grew increasingly concerned that last year’s meteoric rise in digital assets was unjustified.

This week’s selloff has coincided with a rout in global equities. Some technical indicators suggest the rout in bitcoin has further to go.

The cryptocurrency’s Moving Average Convergence Divergence indicator tracked by Bloomberg over the past year, flagged further downside after turning bearish in December.