Bitcoin tumbles almost 30%, and one exchange temporarily halts trading

Biggest one-day drop of the year for cryptocurrency which had been soaring; Israel’s top regulator last week warned ‘it behaves like a bubble’

Illustrative image of bitcoins (Courtesy BitsofGold)
Illustrative image of bitcoins (Courtesy BitsofGold)

A bitcoin sell-off that began at the beginning of the week was gaining momentum on Friday.

The value of the cryptocurrency fell almost 30% in a volatile session Friday, the Washington Post reported.

Bitcoin was trading at $11,910 just before 10 a.m. EST on Friday, according to cryptocurrency tracker CoinMarketCap, the Post said, down 27% since Thursday.

Coinbase, one of the largest US bitcoin exchanges, announced a temporary halt to trading.

The price of bitcoin has skyrocketed in recent weeks, and Friday’s drop brings it back only to where it traded on December 5.

The price soared from under $10,000 at the end of November to just under $20,000 on Sunday. It cost less than $1,000 at the beginning of the year.

This file photo taken in Washington, DC, on May 1, 2014 shows bitcoin medals. (AFP/Karen Bleier)

The extraordinarily rapid rise in the price of bitcoin, which still isn’t widely used to buy things, has led many financial experts to call it a speculative bubble that’s waiting to burst.

Steep downturns do happen regularly, though Friday’s was its biggest one-day drop this year. It fell 11.5 percent over two days in early December and 21.5% over five days in November.

As bitcoin’s value has climbed, mainstream investors have started paying attention. Bitcoin futures started trading on the Cboe and CME this month. Those futures fell about 18% Friday. Futures don’t involve actual bitcoins, but rather the direction that investors believe the value if bitcoin will go in coming months.

The US Securities and Exchange Commission put out a statement last week warning investors to be careful with bitcoin and other digital currencies.

Regardless, the rocketing price of bitcoin has created a spectacle continues to draw interest. A number of small companies have recently changed their names to incorporate “bitcoin” or “blockchain,” and the stock price of some of those companies has jumped radically as a result.

Blockchain is the digital ledger that records transactions in bitcoin or other measures, preventing the same bitcoin from being spent twice.

While many finance professionals see bitcoin itself as a speculative mania, they also believe blockchain technology has promise in that it may make transactions smoother and more efficient.

Israel’s top financial regulator last week called on the Tel Aviv Stock Exchange to consider banning companies tied to bitcoin or other cryptocurrencies from listing on the Tel Aviv Stock Exchange until a proper regulatory process is in place for dealing with these kind of companies.

Israel Securities Authority chairman Shmuel Hauser at a Finance Committee meeting in the Knesset on September 11, 2017. (Miriam Alster/Flash90)

Israel Securities Authority chief Shmuel Hauser said in a letter to Ittai Ben Zeev, the CEO of the TASE, that these companies should also be banned from entering the exchange via a “back door,” or through the activities of an existing company that is already listed on the exchange.

In his letter, Hauser called on Ben Zeev to take immediate steps to halt the entry of these bitcoin-based companies into the TASE indices. In parallel, he said, the ISA will work on a regulatory framework that will consider how they have to report activities to the regulators and investors, how money laundering concerns should be addressed and how their valuations should work, taking into account the fact that the bitcoin is a highly volatile currency.

Hauser’s letter to the TASE CEO came after the regulator delivered comments saying he would not allow companies whose values are based on bitcoin values, like Natural Resources Holdings (Mashabei Teva), to be included in the TASE indices.

“I would like to emphasize that we will not allow companies whose value is based on bitcoin’s value, such as [the bitcoin trading firm] Mashabei Teva, to be included in TASE indices. We will also consider not allowing trading in ‘back-door’ [attempts to trade surreptitiously in] bitcoins or the like until we find a suitable regulatory framework for such instruments.”

“Hauser’s move is an important one as it saves household investors from investing in these highly speculative kind of shares,” said Yaniv Pagot, an economist and head of strategy for the Ayalon Group, an Israeli institutional investor.

Hauser pointed to the difficulties regulators face in handling cryptocurrencies.

“There isn’t any information on supply and demand, and whether anyone is in control of that supply and demand,” he noted. “It looks like a bubble and behaves like a bubble, as there is no way to explain the price increase from $2,000 to $11,000 within a few months and then a sudden drop of 20% within a day, and another increase to $14,000 within a few more days. That does not mean that bitcoins or their kind are not to be considered [for investment], but it does mean that it should be examined at the national level by all regulators.”

Hauser has expressed misgivings about cryptocurrencies in the past, telling The Times of Israel in November that he was “very troubled” by the possibility that binary options fraudsters were entering the field and may be seeking to perpetrate the next big scam.

“We’re very concerned about initial coin offerings and cryptocurrencies,” Hauser said in that interview. “We don’t want this to become the next mutation of binary options or a haven for fraudsters.”

Simona Weinglass contributed to this report.

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