The nonstop rise of the cryptocurrencies just stopped
More cryptomoney, more problems.
Technical glitches, competition, and Wall Street skepticism have walloped the value of bitcoins lately, a rare setback in the digital currency’s otherwise steady rise.
The question now is whether the selloff will ultimately prove to be a temporary bout of growing pains or a more significant turning point in bitcoin’s evolution.
Bitcoin prices have approximately tripled this year, touching a monthly closing high above $3,000 on June 11. But they’ve since fallen near $2,600, down more than 13 percent from the high, according to the cryptocurrency site CoinDesk.
Bitcoin’s woes started last week with a massive headache for traders as the popular bitcoin exchange Coinbase experienced an outage due to heavy volume. The incident highlighted how popular cryptocurrencies have become, with the global market now topping $100 billion. But it also renewed concerns about whether the ecosystem around bitcoin and its peers is mature and stable enough to truly challenge more traditional means of exchange issued by governments.
Coincidentally, the grandaddy of government-issued “fiat” currencies, the U.S. dollar, got a shot in the arm Wednesday when the Federal Reserve’s policy committee raised its key interest-rate target by a quarter percentage-point, to a range of 1 percent to 1.25 percent.
The Fed’s move was aimed at fighting inflation, but it will also effectively limit the supply of dollars moving through the global economy in the months ahead. That tends to support the greenback’s value against rivals, including digital upstarts like bitcoin.
The cryptocurrency market is also seeing an influx of new competitors, notably the Ethereum platform. Its currency, the ether, is already the second-most-popular cryptocurrency after bitcoin and is generally regarded as more flexible as a tool for building applications.
The ether also has taken a hit lately, off about 12 percent after hitting a monthly high over $400 last Monday. But that pullback has been slightly less than bitcoin’s, and the ether’s rally for the year has been much steeper, up more than 40 times its 2016 year-end value.
In a note to clients last Monday, Goldman Sachs head of technical strategy Sheba Jafari warned that a number of signals in the bitcoin market are “looking broadly heavy.”
A few days later, Morgan Stanley analysts floated an idea that’s perhaps even more unthinkable in the freewheeling cryptocurrency market — that more regulation might be needed to help bitcoin and its peers realize their potential as actual transaction tools to conduct commerce.
For now, they still function more as playthings for speculative investors. And they have been selling.