Cryptocurrencies tumbled on Monday, wiping off nearly $140 billion in total market cap, as traders took profits on the spectacular rally so far this month in light of a stronger dollar and growing political uncertainty.
Investors will be keeping a close eye on a possible impeachment of President Donald Trump and a surge in COVID-19 cases in Asia.
Bitcoin plunged as much as 21% over Sunday and Monday, its biggest two-day decline since March, though the cryptocurrency is still up roughly 89% on a trailing one-month basis. Ethereum fell 12%. The smaller coins XRP and Litecoin shed about 18% each.
Bitcoin last week hit a record high above $41,000, swept up by the combination of a weaker dollar, economic optimism, and a wave of bullish sentiment toward cryptocurrencies as big-name investors and investment banks touted a potential for huge gains this year.
“The horror of the ongoing assault on our democracy perpetrated by this President is intensified and so is the immediate need for action,” House Speaker Nancy Pelosi wrote to colleagues on Sunday.
Strategists at Rabobank said in a note that “the stronger dollar and higher bond yields has also sparked a plunge in Bitcoin and in gold prices this morning.”
Bitcoin and other cryptocurrencies, similar to many commodities, tend to do the opposite of whatever the dollar is doing.
The correlation between Bitcoin and the dollar index was at -0.95, meaning the two are more likely to move inversely. Correlation is measured between 1.0 and -1.0, with the former signifying that the two assets are prone to moving in perfect tandem.
The dollar was up 0.4% against a basket of major currencies, trading at its strongest in almost two weeks after plumbing 33-month lows last week.
Ethereum, the second-largest cryptocurrency by market capitalization after Bitcoin, fell 11.4% on the Bitfinex exchange, where trading volume was the largest, according to Bloomberg data. The price held at about $1,128, within sight of last week’s three-year high of about $1,350.
However, analysts said the retreat was likely to be temporary, given the growing number of buyers and owners of cryptocurrencies.
“Some of the anarchy froth supporting Bitcoin after anti-government types stormed Capitol Hill is receding a touch. But the reason to stay long coins on the new age technology impulse and all that is associated with blockchain technology hasn’t changed much,” said Stephen Innes, the chief market strategist at Axi.