Bitcoin, for sure, is no stranger to the speculative frenzy gripping the cryptocurrency markets.
The digital token reached a record of almost $42,000 on January 8. It closed 2020 on a whopping 200% tear over three months.
But that move paled next to the returns notched by the WSB (WallStreetBets) Reddit crowd, where day traders targeted heavily shorted stocks and used options to spark gains that top 900% in some cases.
Having surged 305% in 2020 – only after losing almost three-quarters of its value in 2018 – the famously volatile cryptocurrency fizzled in early January. With a perceived market cap of around $575bn, it fell as much as 17% in the biggest drop since March 2020.
Another crypto wild ride is Dogecoin (a digital coin that features the face of the Shiba Inu breed of hunting dog from Japan as its logo) that started as a joke, but has become the latest obsession for retail traders. It plunged almost by half last Saturday, sparking a flurry of posts on Reddit and Twitter not to panic sell.
Here are two latest caveats vis-à-vis the cryptocurrency trading mania.
Bitcoin investors need to be prepared to “lose all their money,” European Central Bank governing council member Gabriel Makhlouf said, the latest warning from a central banker on the cryptocurrency.
“Personally, I’m not sure why people invest in those sorts of assets, but they see them as assets clearly,” Makhlouf, who is also governor of Ireland’s central bank, told Bloomberg TV on Friday. “Our role is to make sure that consumers are protected.”
The comments echo scepticism from ECB leaders. The cryptocurrency is a “highly speculative asset,” President Christine Lagarde said last month.
India now plans to introduce a bill seeking to prohibit all private cryptocurrencies in the country. The proposed law will provide a framework for the creation of an official digital currency to be issued by the Reserve Bank of India.
Of late, the digital token rallied overnight after Tesla CEO Elon Musk tweeted “#bitcoin” to his legions of followers. Dogecoin also became the latest obsession partly because Musk posted an image on Twitter of a Dogue magazine cover featuring a whippet in a red outfit.
In both cases, no further explanations were given, but many took them as references to the corresponding tokens.
The uproar did attract the attention of Washington and regulators, leading online brokerages to restrict trading in certain stocks and options.
Robinhood Markets, the brokerage that ushered in the no-fee trading structure that enlivened the retail scene, on Friday limited transactions in Bitcoin and other digital tokens that had joined the party.
Over the years, the financial world has been growing warier of the highly volatile digital currencies.
Early December, finance ministers and central bankers from the Group of Seven advanced economies strongly supported the need to regulate digital currencies.
The US Federal Reserve is now collaborating with counterparts across the world on developing central bank digital currencies (CBDC).
Amid regular boom-and-bust cycles, longer term, regulatory scrutiny of the highly-volatile cryptocurrency market is set to get wider.
