Bitcoin slumped 10 per cent to a 10-day low before paring some of its losses Thursday as traders feared tighter U.S. regulations.
The world’s most popular cryptocurrency Bitcoin was last down 10.6 per cent at US$31,724. It has lost about 27 per cent of its value after touching a record US$42,000 on Jan. 8.
The pullback comes amid growing concerns that Bitcoin is one of a number of financial market price bubbles.
Fears that U.S. President Joe Biden’s administration could attempt to regulate cryptocurrencies have also weighed on sentiment, traders said.
During a Senate hearing on Tuesday Janet Yellen, Biden’s pick to head the U.S. Treasury, expressed concerns that cryptocurrencies could be used to finance illegal activities.
“I think many are used, at least in a transactions sense, mainly for illicit financing, and I think we really need to examine ways in which we can curtail their use and make sure that money laundering does not occur through these channels,” said the former chair of the U.S. Federal Reserve.
Joseph Edwards of cryptocurrency broker Enigma Securities said these comments had a substantial impact.
“The action over the last 36 hours or so has largely been rippling outwards from the Janet Yellen comments on crypto,” he said, adding that it was still unclear exactly what, if any, moves the Biden administration would take.
“We do think it’s probably still just a lapse in momentum rather than a sea change, though,” he said.
The declines come amid signs that more institutional investors are taking steps to invest in the cryptocurrency.
BlackRock Inc, the world’s largest asset manager, plans to add bitcoin futures to the list of eligible investments for two of its funds, company filings Wednesday show.
Other asset managers are likely to follow in BlackRock’s footsteps and add exposure to bitcoin in their go-anywhere or macro strategies as the cryptocurrency market becomes more developed, said Todd Rosenbluth, director of mutual fund research at investment research firm CFRA.
“It’s easy to see how strong the performance has been of late and look at a historical asset allocation strategy that would have included a slice of crypto and how returns would have been enhanced as a result,” he said. “Large institutional investors are going to be able to tap into the futures market in a way that a retail investor could not do.”
There are currently no U.S.-based exchange traded funds that directly offer exposure to bitcoin.
(Reporting by Julien Ponthus and Tom Wilson Editing by David Goodman and Aurora Ellis)