Bitcoin falls to its lowest level in a month as adoption struggles in El Salvador

The most valuable cryptocurrency plummeted to a low of $43,050.

Bitcoin fell as much as 17% to its lowest level in a month, as El Salvador's cryptocurrency adoption appeared to be stalling.

The largest cryptocurrency plunged to $43,050 in New York on Tuesday, losing more than 10% in an hour before recovering roughly half of its losses. At one point, the Bloomberg Galaxy Crypto Index, which monitors some of the largest digital coins, fell as much as 19%.

“Mysterious selloffs, or selloffs for which no legitimate reason is discovered until a large period of time has passed, are significantly more prevalent in crypto than in other asset classes,” said Stephane Ouellette, CEO and co-founder of FRNT Financial.

“The market continues to be significantly more opaque and global in scope than the majority, if not all, other important asset classes.”

The collapse was likely accelerated by the fact that over 336,000 traders had their accounts liquidated in the last 24 hours, totalling around $3.6 billion in cryptocurrency, according to statistics from Bybt, a cryptocurrency futures trading and information platform.

The pullback comes as Bitcoin confronts one of the most significant tests of its 12-year history, with El Salvador becoming the first country to legalise it as a form of payment. President of the Central American nation, Nayib Bukele, announced on Twitter that the project's digital wallet, which was previously unavailable due to technical difficulties, is now available for download.

For users who register with a Salvadoran national ID number, the wallet, dubbed Chivo, comes pre-loaded with $30 worth of the money.

Users on social media platforms such as Twitter and Reddit discussed plans to buy $30 worth of Bitcoin in bulk on Tuesday to commemorate El Salvador's new law taking effect. The possibility of a coordinated price pump is reminiscent of prior web initiatives targeting meme stocks such as GameStop.

Mr Bukele also stated on Twitter during the price decline that he was buying the drop, noting that the country now controls 550 Bitcoin. At one point, the terms "cryptocurrency" and "cryptocurrencies" were trending on Twitter.

Tuesday's sell-off represents the most significant reversal of the recovery that had lifted Bitcoin about 75% since late July. Other coins that had experienced even greater price surges fared worse: Cardano has lost approximately 15% of its value. Tuesday, according to CoinMarketCap.com, while Dogecoin, the frequently mocked joke cryptocurrency, fell about 20%.

Traders also expressed concern about the lack of seasonality. September is the first month in the last decade in which Bitcoin has failed to generate positive gains. The token fell during the calendar month in six of the preceding ten years, losing an average of more than 6%, Bloomberg data indicate.

“I believe it is some of the system's speculative excesses being squeezed out,” Bloomberg Intelligence's Mike McGlone said on Bloomberg's live programme "QuickTake Stock."

Ether, the second-largest digital asset, too experienced a price decline, falling from $3,900 to around $3,000 in a couple of minutes.

Additionally, shares of companies associated with cryptocurrencies fell. Riot Blockchain fell as much as 10%, the most since July 27, while Marathon Digital fell 11%. Coinbase Global, which provides an online trading platform for such digital currencies, fell as high as 5.7%, while MicroStrategy sank 9.5%.

Nonetheless, Bitcoin found support and bounced off its 50-day average price. It recovered some of its losses and is now trading above its 200-day moving average, which is now around $46,000.

“We have frequently witnessed in the past where many traders take profits at psychological levels such as $40,000 and $50,000,” said Leah Wald, chief executive officer of Valkyrie Investments.

“The market tends to sell off as a consequence of limit orders put just above these critical price levels, or as a result of stop losses set after they are exceeded, as investors seek to lock in profits in the event of a market retracement.”

Many observers were taken aback by Bitcoin's movements – the coin is well-known for its volatility, but the speed with which it sank and quickly recovered part of its losses surprised many. As of 12.39pm in New York, it was trading at around $47,370, down 8.8%.

“While it was unsurprising that Bitcoin did not soar in response to the El Salvador news, this pullback is strange, especially given that it occurred midmorning and not immediately following the announcement,” said Matt Maley, chief market analyst at Miller Tabak + Co.

“It will not be a problem if it was a 'fat finger' at a hedge fund or brokerage firm. If it's something else, I'll become significantly more concerned.”

Support us!