Bitcoin has lost a tenth of its value this week, putting it on track for its worst run since a massive selloff in September, as global regulators turn their eyes to the controversial cryptocurrency.
Despite a mini-rally on Friday, bitcoin was trading around $ 32,000 by late afternoon in London – on track for a second consecutive weekly decline after a spectacular rally earlier this year.
The drop had been fueled by industry reports that the same token was used in two separate transactions, an event that violated a key market rule. This was later dismissed by the Bitcoin community and analysts, who said there was no ‘double spending’ and that what was being seen was the normal process by which the blockchain – the digital ledger that underlies -tends bitcoin – resolves transactions.
“What was seen as malicious manipulation was in fact a perfectly normative blockchain event,” said Antoni Trenchev, managing partner of crypto lender Nexo.
Many professional investors are moving away from crypto assets due to the volatility of their prices and the lack of fundamentals such as earnings or assets on which to base valuation.
“Strong variations in feeling [are] a risk for cryptos, ”UBS analysts wrote in a note to investors this week. “We reiterate our call for extreme caution on cryptocurrency speculation.”
But some investors are dipping a foot in the industry, after a frenzied rally last year that led to a 300% rise in bitcoin. BlackRock, the world’s largest asset manager, is opening the door to owning bitcoin-related derivatives in two of its funds, the BlackRock Income Opportunities fund and the BlackRock Global Allocation fund.
In a filing with the U.S. market regulator this week, BlackRock noted that the use of cash-settled bitcoin futures could involve a high level of liquidity risk and that future regulatory changes could result in losses.
Yet his decision reflects what some describe as the growing institutionalization of the crypto industry. BlackRock’s chief investment officer for global fixed income, Rick Rieder, told CNBC in November that bitcoin could even replace gold in investors’ portfolios. Some analysts present it as an alternative inflation hedge to the precious metal.
BlackRock declined to comment.
“Bitcoin is a global macro asset and I think more and more traditional asset managers are realizing its value as a portfolio hedging tool,” said Marc Bernegger, member of the manager’s board of directors. digital assets and Crypto Finance broker. “It’s good for bitcoin because it means more liquidity and a healthier market.”
The UK’s Financial Conduct Authority and the European Central Bank argued last week that tougher regulations should be passed for cryptocurrencies.
ECB President Christine Lagarde told a conference that bitcoin was “a highly speculative asset” and condemned the criminal activity often associated with the market. Janet Yellen, Joe Biden’s candidate to be the next US Treasury Secretary, raised the possibility that US regulators could act to “reduce” the use of cryptocurrencies.
“More regulation is quite obvious as bitcoin is becoming more and more relevant to the financial system,” Bernegger said.