Bitcoin plummets by the most since March as a stronger dollar and investor nerves strip off nearly $140 billion in cryptocurrency market cap
Bitcoinslid as much as 21% over Sunday and Monday, its biggest two-day decline since March, under pressure from investor risk aversion that also undermined equities while the dollarrallied.
- The possibility of a second impeachment for President Donald
Trumpencouraged safe-haven flows into the dollar, which rose to two-week highs.
- Bitcoin is still up roughly 89% over the past month.
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Investors will be keeping a close eye on a possible impeachment of President Donald Trump and a surge in COVID-19 cases in Asia.
Bitcoin plunged as much as 21% over Sunday and Monday, its biggest two-day decline since March, though the cryptocurrency is still up roughly 89% on a trailing one-month basis. Ethereum fell 12%. The smaller coins XRP and Litecoin shed about 18% each.
The fall in cryptocurrencies on Monday wiped nearly $140 billion off the entire market. Last week, the overall cryptocurrency market rose above $1 trillion for the first time.
Bitcoin last week hit a record high above $41,000, swept up by the combination of a weaker dollar, economic optimism, and a wave of bullish sentiment toward cryptocurrencies as big-name investors and investment banks touted a potential for huge gains this year.
Political uncertainty has mounted, knocking investor risk appetite for assets such as stocks and commodities. House Democrats have said they're prepared to impeach Trump again after he encouraged a right-wing mob that stormed the Capitol building last week.
"The horror of the ongoing assault on our democracy perpetrated by this President is intensified and so is the immediate need for action," House Speaker Nancy Pelosi wrote to colleagues on Sunday.
Strategists at Rabobank said in a note that "the stronger dollar and higher bond yields has also sparked a plunge in Bitcoin and in gold prices this morning."
Bitcoin and other cryptocurrencies, similar to many commodities, tend to do the opposite of whatever the dollar is doing.
The correlation between Bitcoin and the dollar index was at -0.95, meaning the two are more likely to move inversely. Correlation is measured between 1.0 and -1.0, with the former signifying that the two assets are prone to moving in perfect tandem.
The dollar was up 0.4% against a basket of major currencies, trading at its strongest in almost two weeks after plumbing 33-month lows last week.
Ethereum, the second-largest cryptocurrency by market capitalization after Bitcoin, fell 11.4% on the Bitfinex exchange, where trading volume was the largest, according to Bloomberg data. The price held at about $1,128, within sight of last week's three-year high of about $1,350.
However, analysts said the retreat was likely to be temporary, given the growing number of buyers and owners of cryptocurrencies.
"Some of the anarchy froth supporting Bitcoin after anti-government types stormed Capitol Hill is receding a touch. But the reason to stay long coins on the new age technology impulse and all that is associated with blockchain technology hasn't changed much," said Stephen Innes, the chief market strategist at Axi.
Read more: 'This one feels a lot like 1999': An ex-Wall Street strategist breaks down why he is approaching the markets with a 'tactically bullish' strategy - and 3 pieces of advice on how to play a market set for a correction
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