LONDON/TOKYO (Reuters) – Bitcoin fell sharply on Monday, losing ground from a record high of $34,800 touched a day earlier, with traders citing volatility in highly leveraged futures markets.
Bitcoin fell more than 14% after earlier touching as high as $33,670, wiping out more than half its 20% rally from New Yearâ€™s Eve to a record $34,800 on Sunday.
Bitcoin was last down 8% at $30,542.
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 bitcoinâ€™s price.
â€œItâ€™s the unwinding of some of that leverage,â€� said Richard Galvin of crypto fund Digital Asset Capital Management.
Bitcoinâ€™s record high came less than three weeks after it crossed $20,000 for the first time, on Dec. 16. The worldâ€™s biggest cryptocurrency more than quadrupled in price last year.
Traders said bitcoinâ€™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.
â€œItâ€™s still an unavoidably volatile asset by its nature,â€� said Joseph Edwards of crypto brokerage Enigma Securities.
â€œFor the most part, this looks like a purely technical move, signalled and caused by short-term euphoria,â€� he added.
Smaller coins that often move in tandem with bitcoin also fell, though not as sharply. Ethereum, the second biggest, dropped 1% after touching a 3-year high of $1,170.
Fuelling bitcoinâ€™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.
â€œSome of it is reflecting the fear of a weaker dollar,â€� Bank of Singapore currency analyst Moh Siong Sim said of its most recent rally.
Still, gold rose 2%, underlining bitcoinâ€™s patchy correlation with the traditional inflation hedge.
Bitcoinâ€™s advance has also reflected expectations it will become a mainstream payment method. Its potential for quick gains has also attracted demand from larger U.S. investors.