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Bitcoin rebound comes under pressure as U.S. calls for new regulatory rules

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Beset by rising regulatory pressure, bitcoin hovered around $40,000 USD on Friday, pausing its attempt to recover from this week’s massive plunge.

Bitcoin was little changed on the day at $40,256 on the Bitstamp exchange. That is roughly 30 per cent above its Wednesday low, but below its 200-day moving average. Rival cryptocurrency ether also came under pressure, falling one per cent to $2,745.

The U.S. Treasury Department on Thursday called for new rules that would require large cryptocurrency transfers to be reported to the Internal Revenue Service and the Federal Reserve flagged the risks cryptocurrencies posed to financial stability.

Those warnings came after Chinese financial industry bodies banned the use of cryptocurrencies in payment and settlement earlier in the week.

Read more: Bitcoin stabilizes after falling below US$40K amid China regulation concerns

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“Nerves remained heightened, and I cannot see liquidity being deeper on Saturdays and Sundays than Monday to Friday, especially after the last week,” said Jeffrey Halley, senior market analyst at OANDA.

“Weekend headline risk could prompt another bout of extended wealth destruction for the weekend warriors.”

Bitcoin markets operate 24/7, setting the stage for price swings at unpredictable hours, with retail and day traders driving those moves.

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The offloading in crypto world has coincided with a surge in gold, which has hit 4-1/2 month highs and is on track for three straight weeks of gains, rising 1.8 per cent so far this week.

A narrative of bitcoin becoming “digital gold” had gained traction earlier this year, with JPMorgan saying in January that bitcoin emerged as a rival to gold.

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But Societe Generale questioned the comparison on Thursday: “Bitcoin has clearly ‘outshone’ gold both to the upside and now also to the downside. But with such a gap in volatility and amplitude, does it make sense to compare the two assets at all?”

Read more: Bitcoin’s fossil fuel use criticized. But some Canadian companies hope to turn it green

Ether is down 24 per cent for the week and bitcoin down 15 per cent.

The selloff also spilled over into equity markets on Wednesday, more so in companies with high exposure to cryptocurrencies, such as Coinbase. Coinbase is down 10 per cent this week.

“For assets like crypto and equities the underlying common denominator is very loose central bank policies around the world and that combined with an exuberance for risk taking has filtered into crypto markets,” said Edward J. Perkin, chief equity investment officer at Eaton Vance.

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