Bitcoin fell over 14 percent after earlier touching as high
as $33,670, wiping out more than half its 20 percent rally from New Year's Eve
to a record $34,800 on Sunday.
Bitcoin was last down 9 percent at $30,077.
A functioning cryptocurrency derivatives market has
developed since 2017, with offshore exchanges still offering highly leveraged
trading. Moves in such markets can have an outsized effect on Bitcoin's price.
"It's the unwinding of some of that leverage,"
said Richard Galvin of crypto fund Digital Asset Capital Management.
Bitcoin's record high came less than three weeks after it
crossed $20,000 for the first time, on December 16. The world's biggest
cryptocurrency more than quadrupled in price last year.
Traders said Bitcoin's drop on Monday was not unusual for
the volatile asset, whose wild price swings have in part prevented it from
becoming widely used as a currency.
"It's still an unavoidably volatile asset by its
nature," said Joseph Edwards of crypto brokerage Enigma Securities.
"For the most part, this looks like a purely technical
move, signalled and caused by short-term euphoria," he added.
Fuelling Bitcoin's rally has been the perception it can act
as a hedge against the risk of inflation as governments and central banks turn
on the stimulus taps to counter the economic impact of the COVID-19 pandemic.
"Some of it is reflecting the fear of a weaker
dollar," Bank of Singapore currency analyst Moh Siong Sim said of its most
recent rally.
Bitcoin's advance has also reflected expectations it will
become a mainstream payment method. Its potential for quick gains has also
attracted demand from larger US investors.
© Reuters
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