$386 Billion to $330 Billion: Sudden Crypto Correction Comes with Heavy Dose of Scrutiny Toward Libra
A parabolic rally in bitcoin drove the crypto asset class to 14-month highs on Wednesday after large buyers overpowered active sellers and casual market players. The elevator to the moon proved unsustainable after it became apparent that major exchanges couldn’t handle trade volumes.
While the steep correction could be seen a mile away (bitcoin had entered extreme overbought levels), the elevator back down also came amid news that the Federal Reserve is planning to put the screws to Libra, Facebook’s forthcoming cryptocurrency project.
Cryptocurrency markets were a sea of red on Thursday, as all of the top-30 coins reported declines. With the exception of Tether (USDT), a dollar-backed stablecoin, all of the top-15 coins were down by at least 7%.
The total cryptocurrency market cap peaked north of $386 billion on Wednesday but has since fallen back to around 330 billion. Bitcoin‘s share of the pie is holding steady near 63%, having gained six percentage points over the past week.
The sudden reversal in fortunes comes after bitcoin entered extreme overbought levels, which may have prompted a broad pullback. Exchange-based volatility was also a factor after several trading platforms reported a temporary disruption in services. A brief outage at Coinbase, a leading San Francisco-based exchange, was associated with a double-digit drop in bitcoin’s price.
Fed Will Hold Libra to Very High Standard: Powell
Federal Reserve Chairman Jerome Powell has promised to carefully examine Facebook’s forthcoming cryptocurrency, Libra, to ensure that it complies with regulation and existing guidelines on consumer protection.
“Libra’s a new thing; we are looking at it very carefully,” Powell said in a Q&A on Tuesday at the Council on Foreign Relations in New York, as quoted by Reuters. “Given the possible scale of it, I think that our expectations — from a consumer protection standpoint, from a regulatory standpoint — are going to be very, very high.”
Facebook debuted Libra last week in a detailed whitepaper that laid out the technical and design features of the new blockchain project. The release of the whitepaper didn’t have an immediate effect on crypto prices, but was later cited by mainstream media outlets as the principal cause for the sudden spike in bitcoin. In reality, bitcoin has been in accumulation since the beginning of the year and there are several, overlapping reasons for its continued breakout.
Libra is already facing opposition from international regulators over security and Facebook’s emerging role in the payments arena. Randal Quarels, the chair of the G20’s Financial Stability Board, has called for “close scrutiny” of Libra to ensure it is subject to a high standard of regulation.
Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock. Chart via TradingView.