Cryptocurrencies resumed their slump on Monday, with Bitcoin approaching the $5,000 mark for the first time since October 2017, in the wake of increased regulatory scrutiny of initial coin offerings and the split of one of the largest tokens.
Bitcoin declined as much as 7.3 percent to $5,053, while so-called alternative coins slumped even more, with Ether tumbling as much as 12 percent and Litecoin cratering as much as 13 percent. XRP, the token associated with Ripple, was the lone gainer among major digital currencies. The Bloomberg Galaxy Crypto Index fell as much as 8.3 percent to a one year-low on a closing basis.
“The selloff is related to enforcement, which is almost certainly underway," said Justin Litchfield, chief technology officer at ProChain Capital. "Projects are being made to return investor money, which, after having spent a ton of money marketing their $100 million ICO on a lavish party-filled road-show that was the norm for this vintage of ICOs, will be tough.”
The SEC announced its first civil penalties against two cryptocurrency companies that didn’t register their initial coin offerings as securities. Airfox and Paragon Coin Inc. will each have to pay $250,000 in penalties to compensate investors, and will also have to register their digital tokens as securities, the agency said in a Nov. 16 news release.
The issuers were asked by the U.S. Securities & Exchange Commission to provide refunds to investors, raising concern that other companies that used the proceeds from sales to finance projects could be forced to do the same.
Volatility has returned to cryptocurrencies, with the largest tokens shedding billions in market value since the hard fork of Bitcoin Cash debuted last week. That came as two software-development factions failed to agree on a way to upgrade the offshoot of the original Bitcoin, leading to a computing power arms race.
The cryptocurrency industry has now lost more than $660 billion in value from a January peak, according to data from CoinMarketCap.com. Bitcoin is down more than 70 percent from its December 2017 high, the data show.
Thomas J. Lee, managing partner at Fundstrat Global Advisors and a long-time crypto bull, slashed his year-end price target for Bitcoin to $15,000 from $25,000. The target is based on a fair value multiple of 2.2 times the breakeven cost of mining, which the firm pegs at $7,000, according to a report last week.
“Crypto-specific events have led to greater uncertainty in the crypto market, including the contentious hard fork for Bitcoin Cash,” Lee said in the note Friday. Bitcoin’s break below $6,000 “has lead to a renewed wave of pessimism,” he said.
Bitcoin bulls may be able to take heart in some technical measures. Based on the GTI Global Strength Indicator, Bitcoin is flashing oversold for the first time since August, and its most oversold level this year. In addition, it is testing its 23.6 percent five-year look back Fibonacci level of $4,727 as its next support.