Cryptocurrencies were hit by a flash crash over the weekend that saw the price of bitcoin plunge by a dramatic 15 per cent in 24 hours – its sharpest slide in months.
The tumble happened just days after the world’s top digital coin hit a record high of more than $US64,000 ($A82,755) on Wednesday, amid excitement for the arrival of digital currency exchange Coinbase on Wall Street.
But on Sunday the price of bitcoin fell from about $US59,000 ($A762,90) to $US51,000 ($A67,238) before rebounding. It was the steepest slump in the price of bitcoin since February.
The price of other cryptocurrencies also plunged over the weekend, including XRP and Ether, the second-largest virtual currency, which fell almost 18 per cent before recouping some losses.
Dogecoin, which began as a joke and rose in popularity in 2013, appeared to be holding steady. Last week Dogecoin saw a massive rally, with its price soaring by 400 per cent in just seven days.
The weekend’s carnage has been attributed to unconfirmed reports the US Treasury would crack down on money laundering carried out through digital currencies.
But other factors may have been behind the crash, with analysts warning for months of a potential cryptocurrency bubble.
Edward Moya, senior market analyst at foreign exchange company OANDA, said cryptocurrencies had been ripe for a pullback.
“The market has become overly aggressive and bullish on everything,” he said.
“It could have been any bearish headline that could have triggered this reaction.”
Analysts said overexcitement for Coinbase’s public trading could also explain the massive sell-off.
“With hindsight it was inevitable,” Galaxy Digital founder and investor Michael Novogratz said in a tweet on Sunday.
“Markets got too excited around $USCoin (Coinbase) direct listing. Basis blowing out, coins like $USBSV, $USXRP and $USDOGE pumping. All were signs that the market got too one way.”
Speaking to MarketWatch, Mr Novogratz warned of a “washout” ahead.
“In the next week, certainly we could have some volatility because of the excitement around Coinbase,” he said.
“I’ve seen a lot of weird coins like Dogecoin and even XRP have huge retail spikes, which means there’s a lot of frenzy right now,” he added. “That never ends well, and so we’ll probably have a washout at one point.”
Others said the weekend’s sell-off could have been fuelled by a blackout in China’s Xinjiang region, which reportedly powers a lot of bitcoin mining, according to Fox Business.
Luke Sully, chief executive of digital asset treasury specialist Ledgermatic, told the outlet people “may have sold on the news of the power outage in China and not the impact it actually had on the network”.
“The power outage does expose a fundamental weakness; that although the Bitcoin network is decentralised the mining of it is not,” he added.
Many cryptocurrency markets operate 24/7, which allows for price swings at unpredictable hours, and it is the one of the few markets open on weekends to trade in, Bloomberg reports.
Despite the weekend’s plunge and rebound, Bitcoin is still up 89 per cent so far in 2021, as it continues to gain mainstream acceptance as an investment and method for payment.
However, it was dealt a blow last week when Turkey’s central bank decided to ban the use of cryptocurrencies for payments from the end of April, citing concerns about a lack of “supervision mechanisms” and “central authority regulation” for digital assets.