Bitcoin Is Falling Fast, Losing More Than Half its Value in Six Weeks - Wall Street Journal

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Bitcoin Is Falling Fast, Losing More Than Half its Value in Six Weeks

Selloff triggered by expanding regulatory crackdown on cryptocurrencies

A client at the electronic signboard of a cryptocurrency exchange in Seoul last month. South Korea is among the governments clamping down on digital currency trading, leading bitcoin’s price to tumble.

By Steven Russolillo and Kenan Machado

Feb. 2, 2018 2:28 a.m. ET

Bitcoin plunged below $9,000 on Friday, extending its sharp rout since the start of the year in a selloff triggered by a widening regulatory crackdown on cryptocurrencies.

The digital currency has now fallen more than 55% from an all-time high of close to $20,000 in December, according to research site CoinDesk Inc. That marks bitcoin’s third biggest drop over the past five years: It fell 76% in the spring of 2013, and 85% from November 2013 to January 2015.

Bitcoin’s sharp swings illustrate just how much the digital currency remains a highly illiquid and volatile investment, particularly relative to stock, bond or fiat currency markets.

In its nine-year history, it has had five peak-to-trough declines of more than 70% apiece, said Charlie Bilello, director of research at New York advisory firm Pension Partners. It fell 94% in less than a month in 2010—and again over a five-month stretch in 2011—but both times bounced back.

The recent decline in some regards feels more severe, as the magnitude of the dollar price drop offers a dose of reality to new investors who poured money into cryptocurrencies during last year’s frenzied rally. Many were drawn to the prospect of investing in currencies outside the control of central banks and governments, but now are having to succumb to market forces.

“Headlines for crypto have been mostly negative lately,” Thomas Lee, managing partner at New York-based Fundstrat Global Advisors, wrote in a note to clients. “It has been a terrible few weeks, but the fundamental positive story for crypto remains intact,” Mr. Lee added, referring to strong millennial interest in cryptocurrencies.

As bitcoin has emerged from the underground world of nerds and criminals to become a mainstream investment, the risk of hacks and scandals has also blossomed. What's a government to do? The WSJ's Steven Russolillo travels the world (sort of) to see how regulators are responding to the remarkable rise of cryptocurrencies. Video: Sharon Shi and Crystal Tai

Robinhood, an online trading app that targets young people, earlier this week said more than one million people joined its wait list to trade cryptocurrencies after it announced plans to offer crypto trading services.

But regulatory scrutiny is behind much of the reason for bitcoin’s sudden fall. India is the latest country to crack down on the cryptocurrency market, following in the footsteps of China and South Korea. That pressure—and its market impact—shows that governments are turning out to be much harder to circumvent than crypto adovates once thought.

Bitcoin fell 28% in January, its steepest monthly decline in three years, and is still falling. It recently traded around $8,400, according to CoinDesk.

The current mood is a far cry from the end of last year, when cryptocurrency investment mania hit feverish levels. A popular bitcoin-services company called Coinbase briefly drew some 100,000 new customers per day around Thanksgiving, as bitcoin approached $10,000, up from under $1,000 at the start of 2017.

Prices more than doubled from there, peaking at $19,783.21 on Dec. 17. Then came a six-week slide.

Alex Beene, a 30-year-old from Nashville, cashed out as the decline accelerated. He said he recently sold all his bitcoin, locking in a profit of over $60,000.

Mr. Beene, who writes children’s books and works in the Tennessee Department of Labor and Workforce Development, said he bought most of his bitcoin in September, before prices surged over 500% in the following months.

“You’d wake up to $5,000 to $10,000 gains on consecutive mornings,” he said. “It was like a money train that wouldn’t end, but you could tell [it] wasn’t going to last.”

It didn’t.

Mr. Beene did keep some litecoin—an alternative digital currency—in his portfolio. The price of litecoin is down more than 60% from its December high, according to research site CoinMarketCap.

He called the weeks-long crypto selloff “a scary scenario.”

Indian Finance Minister Arun Jaitley said Thursday that the government doesn’t recognize digital money as legal tender and would “take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system.”

Vaibhav Parikh, partner at Indian law firm Nishith Desai Associates, said some people might have misinterpreted, wrongly concluding the government was banning bitcoin.

“The Indian government said it will only crack down on the use of bitcoin for illegal activities and not on the currency itself,” he said.

Other governments, particularly in Asia, have taken stringent approaches to cryptocurrency. South Korea is implementing new legislation aimed at cooling its red-hot bitcoin market. China has gone even further, ordering cryptocurrency exchanges to close and moving toward limiting bitcoin mining operations.

In Japan, $530 million of a cryptocurrency called NEM was swiped in a major heist on the exchange Coincheck Inc. In the U.S., regulators have warned of fraud in so-called initial coin offerings, a new form of fundraising that has attracted billions of dollars.

Even Facebook Inc. is cracking down. The social media giant said this week that it would stop running ads promoting cryptocurrencies and ICOs.

“I don’t think this is the end of the line for cryptos, but I’m certainly not touching any until more stability can be reached,” Mr. Beene said.

Write to Steven Russolillo at steven.russolillo@wsj.com and Kenan Machado at Kenan.Machado@wsj.com.