Bitcoin Falls as Much as 30% as Investors Sour on Cryptocurrencies

May 19, 2021

Bitcoin, dogecoin and other cryptocurrencies plunged in value Wednesday as investors soured on the speculative bets that have soared in popularity this year.

Bitcoin’s price tumbled as much as 30% since 5 p.m. ET Tuesday, dropping to as low as $30,201.96, its weakest since January, according to CoinDesk. It has since rebounded to $40,400. Dogecoin declined 21% to about 38 cents, after earlier plunging as low as about 22 cents. Ether fell 22% to $2,694.77, after earlier being down more than 40%.

Since early Tuesday, the selloff has erased nearly $500 billion from the total value of all cryptocurrencies, according to CoinMarketCap.

The rapid drop led to billions of dollars of bullish bets being wiped out on offshore cryptocurrency derivatives exchanges—a sign that investors playing with high degrees of leverage may have helped the crypto market up in the first place.

“Many people have been tempted to invest purely because it has gone up in value and they have a fear of missing out,” said Rick Eling, investment director at wealth management firm Quilter. “Bitcoin is a volatile asset, and as we have seen so often in financial markets, boom is almost always followed by bust.”

As of midday Wednesday in New York, more than $8.6 billion of liquidations of leveraged bets had taken place during the past 24 hours, including one trader on Huobi, a popular offshore exchange, who lost $67 million in a single liquidation, according to data provider Bybt. The majority of recent liquidations have been from long positions, in which traders bet on an increase in the price of bitcoin or some other cryptocurrency, Bybt data shows.

Such liquidations take place when the market moves against a trader, and the trader isn’t able to exit from the trade or post enough additional funds to meet the exchange’s margin requirements.

“This is indeed a market that has run too far and fast,” said

Joel Kruger,

a currency strategist at LMAX.

Concerns about inflation, which have been weighing on stock and bond markets, are also contributing to the decline, according to Mr. Kruger. “Crypto is considered to be an emerging market, and as such, a risk-correlated market vulnerable to downturns in global sentiment,” he added.

Some crypto exchanges reported glitches during the selloff, adding to the chaos.

Coinbase Global Inc.,

the largest U.S. exchange, said Wednesday that it was having intermittent downtime and that some users were experiencing delays while trying to withdraw certain digital coins. Kraken, another U.S. exchange, reported that users were having difficulty connecting to its app and website amid “very heavy traffic.”

The listing of Coinbase, the largest bitcoin exchange in the U.S., introduces a new way to invest in cryptocurrencies. WSJ explains how Coinbase is trying to distance itself from the risks of bitcoin to succeed on Wall Street. Photo illustration: George Downs

Shares of Coinbase tumbled 6.5%. The company’s share price has lost nearly half its value from its record intraday high on the day it went public last month, a debut that coincided with bitcoin’s peak at $64,829.

At the time, the two events felt like a victory lap for cryptocurrencies, said Oanda analyst

Edward Moya.

Coinbase had an $85 billion valuation, more than most companies in the S&P 500. Institutions appeared to be investing; it was assumed other companies in the industry would go public as well; and bitcoin had survived the challenges thrown at it over the years.

Now, however, that day feels like a different kind of turning point, he said. Bitcoin is down more than 40% since then. In retrospect, Mr. Moya said, “it showed that the fervor for cryptocurrencies had reached their peak.”

Bitcoin bulls credit much of the digital currency’s momentum over the past year to a rush of institutional investors into the market.

MicroStrategy Inc.,

Tesla Inc.,

Square Inc. and Massachusetts Mutual Life Insurance Co. all publicly said they invested some portion of their corporate reserves in bitcoin. Hedge-fund investors like

Paul Tudor Jones


Stanley Druckenmiller

bought bitcoin as well.

Data, though, suggest their impact wasn’t as great as expected.

Between September and February, about $11 billion of investments in bitcoin came from professional investors, both corporations and individuals, JPMorgan Chase & Co. analyst

Nikolaos Panigirtzoglou


In that time period, bitcoin added about $800 billion in market value. Mr. Panigirtzoglou argues that the relatively small amount of professional money didn’t drive the rally itself, but inspired individual investors, who rushed in and pushed the price higher.

Perhaps one of the biggest buy signals they embraced: Tesla’s February announcement that it purchased $1.5 billion of bitcoin. Tesla founder and Chief Executive

Elon Musk,

in fact, has emerged as one of the biggest drivers in the wild price swings of cryptocurrencies.

After months of bullish comments about bitcoin, dogecoin and other cryptocurrencies, Mr. Musk has seemingly become a bitcoin antagonist, some investors are arguing on social media.

Last week, he said Tesla would cease accepting bitcoin as a payment option for its electric cars. At one point, it also appeared that he suggested Tesla would sell its bitcoin holdings, comments that sent its price sharply lower. He later clarified that the company wasn’t doing so and tweeted Wednesday morning using emojis that Tesla has diamond hands, a popular catchphrase among individual investors regarding their ability to hold on to risky bets for long periods.

More important, though, it does appear that the overall institutional inflows are reversing course, Mr. Panigirtzoglou said in a recent research report. “Institutional investors appear to be shifting away from bitcoin and back into traditional gold,” he said.

The average flow of capital into bitcoin funds—measured as a four-week rolling average—has been declining since late January, he said, when it peaked at $600 million. In May, the funds started seeing net outflows of about $100 million. Funds hadn’t seen net outflows since at least January 2020, he said.

The fall in prices from recent highs has delivered sharp losses, at least on paper, to retail traders who bought in at high prices. Ryan Sheplock, a 24-year-old in Philadelphia, bought one ether at $4,000 and some dogecoin worth about $200 last week at the urging of some friends.

“I became a victim to the hype of buying in and trying to ride the hype to the moon,” Mr. Sheplock said.

“That’s the thing with crypto: you can look at graphs all you want but you never know what’s going to happen. One man can tweet something and move the market,” he said.

Bitcoin, Dogecoin, Ethereum: The Ups and Downs in Crypto Markets

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