Bitcoin and Ether are on a general decline from recent record highs

In a broad-based drop from recent record highs, cryptocurrencies slumped on Tuesday, with Bitcoin momentarily falling below $60,000 and Ether at its lowest level this month.

Traders were caught off guard by the largest digital coin, which dropped as much as 8.2% before halving its losses. The dip to $58,661 was the most significant intraday decrease since September 24. Second-placed Ether dropped more than 10% before recouping its losses. According to CoinGecko, the global crypto market cap has decreased 10% in the last 24 hours to $2.7 trillion.

“We are seeing a huge reversal after many days of gains, which saw Bitcoin hover near its all-time high while several other cryptocurrencies managed to achieve new highs,” said Walid Koudmani, an analyst at XTB Market. “The market’s extraordinary volatility might trigger a domino effect if further negative news emerges, driving prices to new lows.”

Crypto-related stocks were also hammered hard, with shares of Coinbase Global Inc., a cryptocurrency exchange, plunging nearly 4% at one point. MicroStrategy Inc., Marathon Digital Holdings Inc., and Riot Blockchain Inc. have all seen their stock prices fall.

Technical indicators had hinted that the recent strong run in the notoriously volatile market was about to come to an end.

Some observers blamed the drop on new tax reporting requirements for digital currencies included in President Joe Biden’s $550 billion infrastructure bill, which was signed into law on Monday.

“We’ve seen the US infrastructure bill get passed, which has sparked a selloff from traders worried about regulation and taxation,” said Hayden Hughes, CEO of Alpha Impact, a social trading platform.

The bill imposes additional reporting obligations on cryptocurrency “brokers,” such as Coinbase, who provide services for transferring digital assets on a regular basis. These businesses must now provide the IRS with information on their clients, including their name, address, and phone number, as well as the gross profits from sales and any capital gains or losses.

Hughes also expressed fear that China’s regulatory crackdown would continue. Meng Wei, a spokesman for the National Development and Reform Commission, said at a news conference that the country will look into the possibility of charging cryptocurrency mining companies punitive electricity costs.

“It’s something that Bitcoin will always be so volatile about — the more attempts to regulate, control it,” said Fiona Cincotta, senior financial markets analyst at City Index. “It simply takes the sting out of it.”

Meanwhile, in a Monday interview with Dow Jones, Twitter Inc.’s chief finance officer said it didn’t make sense to invest the company’s capital in crypto assets like Bitcoin. Jack Dorsey, the co-founder and CEO of Twitter, is one of the most prominent proponents of cryptocurrencies.

This year, Bitcoin has more than doubled in value, while Ether has increased by approximately sixfold. Last week, both achieved new highs amid a craze for digital assets fueled by speculative demand and contentious claims that they help manage inflation risks.

“It appears to be a correction from the optimistic feeling that had been building in the market – volatility had been declining, and the BTC options skew had reached negative territory,” said Noelle Acheson, head of market analytics at Genesis Global Trading.

Many chartists are looking for technical indicators to help them predict where Bitcoin will go next. Its slide pushed it to its 50-day moving average, which served as a level of support.

In a note, Matt Maley, chief market strategist for Miller Tabak + Co., said that if Bitcoin descends significantly below its late-October lows of around $59,000, it will represent a so-called lower-low, leaving it vulnerable to further falls. However, a slide below $50,000 by the end of the month would take it below its July lows’ trend-line. According to him, a further short-term fall would cause no technical harm.

“Bitcoin is taking a beating,” Maley remarked. “It appears to be profit-taking following its impressive run over the last six weeks.”

As of 10:11 a.m. in New York, Bitcoin was down 4.6 percent to $60,934.