Bitcoin prices traded below the $6,000 level for the first time since early November Tuesday as investors dumped digital currencies amid a sell-off that has exposed cryptocurrencies to movements in broader financial markets.
Bitcoins were marked at $6,200 each on the bitstamp exchange in Luxembourg, which feeds prices into the CME Group futures contract, by mid-day in Europe, down 8.7% from Monday's close and more than 67% from its all-time peak of $19,187 on Dec. 16. Bitcoins traded as low as $5,920.72 each during the Tuesday session, taking the corresponding declines in other digital coins, including ripple and ethereum, and the global cryptocurrency "market cap" to $300 billion - around a third of the value it commanded at its mid-December peak, according to Coinmarketcap.com data.
Interestingly, Bitcoin prices appear to be moving in tandem with more mainstream markets, with prices dropping to a session low of $6,500 Monday just as the Dow Jones Industrial Average plunged 1,500 points near the close of trading. Both recovered losses by the closing bell, although the Dow still gave back 1,175.21 points, or 4.6%, in one of the biggest single-day declines in six years.
That has some market observers wondering how closing bitcoin prices might represent retail participation in stocks, particularly given the fact that FINRA member firms margin debt hit a record $642.7 billion in December, according to the most recent data, after rising 16.7% over the whole of 2017.
If the recent market declines -- which have trimmed 8.5% from the Dow and 7.77% from the S&P 500 over the past two sessions prior to Tuesday's open -- are forcing retail customers to meet margin calls from brokerage houses, we could be witnessing liquidations in cryptocurrencies in order to meet those demands.
As Bitcoin crashes to a $5K handle the wash traders move rapidly into action to prop it up...price and quantity action now clearly consistent with criminal wash trades...will the SEC and CFTC start looking into these criminal activities?
— Nouriel Roubini (@Nouriel) February 6, 2018
Those questions might be put to both Christopher Giancarlo, chairman of the Commodity Futures Trading Commission and Jay Clayton, who heads the Securities and Exchange Commission, when the two men face lawmakers on the Senate Banking Committee on Capitol Hill Tuesday amid a probe into regulatory oversight of the expanding cryptocurrency markets.
That grilling follows perhaps one of the more robust criticisms of the market by a senior policy maker earlier Tuesday in Germany, where Agustin Carstens, who heads the Bank for International Settlements -- also known as the central bank of central banks -- called bitcoin "a combination of a bubble, a Ponzi scheme and an environmental disaster."
Carstens, the former central bank Governor for Mexico, said cryptocurrencies were too small to pose a system risk, at least at the moment, but warned that "if authorities do not act pre-emptively", the could "become more interconnected with the main financial system and become a threat to financial stability."