Bitcoin tumbled in an extended selloff for cryptocurrencies, falling past $38,000 to its lowest level in six months.
The largest token sank as much as 9.3 per cent on Friday, marking a three-day downturn. More than 236,000 traders had their positions closed over the past 24 hours, with liquidations totaling $867 million, according to data from Coinglass, a cryptocurrency futures trading and information platform.
Crypto stays in the red
Other cryptocurrencies were similarly in the red as investors offloaded risky bets in a volatile week for global markets. Ether fell below $3,000, losing as much as 12.2 per cent, while Solana, Cardano and Binance Coin also slumped.
Bitcoin has suffered a rocky start to the year and prices are down more than 40 per cent from the early November peak. Digital assets suffered especially in recent days against a wider tech selloff, rising regulatory threats and concerns around tightening US monetary policy.
Regulators in the UK, Spain and Singapore this week suggested toughening the rules on crypto-asset promotion to inexperienced investors, while the Russian central bank on Thursday proposed a ban on cryptocurrencies entirely.
"Rumors of Russian mining bans, the effects of tapering programs and ongoing regulatory concerns in certain jurisdictions are currently taking more weight in trading and investment decisions than the underlying long-term fundamentals," said Jason Deane, an analyst at digital asset research firm Quantum Economics.
Choppy, directionless trading
"At the same time, increased use and adoption of Bitcoin in high-inflation economies creates a confusing market picture leading to lack of decisive direction and momentum either way," he added.
Deane predicted "choppy, directionless trading" in the short term with further weakness possibly still to come.
A technical pattern based on a momentum indicator known as the weekly relative strength index hinted at the possibility that Bitcoin's slump might be due a breather. The indicator on Friday fell into a region that in the past accompanied floors in Bitcoin selloffs.
"Bitcoin and the broader crypto market remain subject to the whims of macro variables," Fundstrat Digital Asset Research strategists Sean Farrell and Will McEvoy wrote in a note.
No longer 'digital gold'?
The argument Bitcoin is a form of "digital gold" is falling apart. As the world's largest cryptocurrency slips to $38,000, the lowest price since August, its decline in tandem with risk assets such as tech stocks is casting a shadow on a long-touted similarity to gold.
Cryptocurrencies have plunged alongside equities in a rocky start to the year amid tighter-than-expected monetary policy, whereas gold - often heralded as a store of value and an inflation hedge - has steadily traded upward this month at 0.3 per cent.
Gold tends to be a low-volatility instrument, according to Steve Sosnick, chief strategist at Interactive Brokers LLC. Meanwhile, cryptocurrencies continue to demonstrate unpredictable price swings. Bitcoin has declined 17 per cent since the start of January.
"If your premise is that you want to buying something as a hedge against distress, boring is great," Sosnick said by phone. "Right now, I'd argue gold year-to-date is one of your best performing assets."
Not a safe haven
Cryptocurrency enthusiasts, including Mike Novogratz, have previously said Bitcoin displays the qualities of gold as an uncorrelated asset. Yet, the 100-day correlation between the Nasdaq 100 and Bitcoin currently stands at 0.4, with a score of 1 representing complete harmony. Meanwhile, the same coefficient between gold and Bitcoin is 0.008 - barely above zero - indicting they're moving only slightly in the same direction.
Earlier this month, analysts from Goldman Sachs argued that Bitcoin could rise to a $100,000 price point, if it could win more of the "store-of value" market from gold. Instead, the digital asset's signature volatility has come to fore.
As such, Bitcoin cannot be substituted for the same uses of the popular commodity, said Peter Schiff, chief executive officer and chief global strategist of Euro Pacific Capital Inc.
"No one is buying gold to get rich. People buy gold to stay rich," said Schiff, a long-time Bitcoin critic and gold proponent. "Gold represents a conservative, long-term store of value and inflation hedge: Bitcoin is none of those things."