Bitcoin’s rally appears to be running out of steam, at least for now.
The digital currency dropped again Friday, briefly falling below $49,000—a decline of more than 20% from its record of $64,829 on April 24.
The rally cratered last Saturday when bitcoin suddenly fell as much as 18% to $52,149—with half the decline occurring in about 20 minutes. Although it recovered some of those losses by Monday, the price has steadily declined, sitting Friday afternoon at $49,620.
The weekend plunge underscored the fragility of bitcoin’s recent advance. It is unclear what triggered the selloff, which according to the data provider CoinMarketCap wiped out nearly $220 billion of value in cryptocurrencies in an hour.
Some traders pointed to a rumor on Twitter that the Treasury Department was preparing to charge several financial institutions for allegedly using cryptocurrencies to launder money, which was picked up by some media outlets. A department spokeswoman declined to comment.
In all, traders lost $10.1 billion on Sunday to liquidations by crypto exchanges, according to the data provider Bybt. More than 90% of the funds liquidated that day came from bullish bets on bitcoin or other digital currencies, Bybt data show, and nearly $5 billion of the liquidations took place on one exchange, Binance, the world’s biggest crypto exchange by trading volume.
As the price of bitcoin tumbled, many of those bets were automatically liquidated, adding more downward pressure on the price and leading to a vicious cycle of further liquidations.
Some crypto traders were wiped out with little warning.
Exchanges such as Binance let individual investors deposit a relatively small amount of money upfront to place an outsize bet. For instance, suppose a trader buys futures that pay off if bitcoin rises against the U.S. dollar. If bitcoin climbs, the trader’s profit could be many times greater than what could have been made simply by buying bitcoin.
But if bitcoin falls, the trader can be on the hook for big losses, and must quickly top off the account with fresh funds, or else the exchange will automatically liquidate the trader’s holdings.
Among other signs of bitcoin’s flagging momentum: signs of waning demand among institutional investors and the tepid performance of Coinbase since its debut last week.
The number of large bitcoin transactions, which are typically made by professional money managers, dropped slightly in the first quarter from the fourth quarter, according to a report from the crypto exchange OKEx.