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- Bitcoin fell 21% from Sunday and Monday, its biggest drop in two days since March, under pressure from investor risk aversion, which also hurt stocks, while the dollar rose.
- The possibility of a second impeachment for Donald Trump, led by Democrats, encouraged safe haven flows into the dollar, which rose to two-week highs.
- Bitcoin is still up 89% last month.
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Cryptocurrencies plummeted on Monday, eliminating nearly $ 140 billion in total market capitalization, as traders made a profit from this month’s spectacular recovery, in light of a stronger dollar and growing political uncertainty.
Investors will keep an eye on the possible impeachment of President Donald Trump and the increase in COVID-19 cases in Asia.
Bitcoin plunged by up to 21% from Sunday and Monday, its biggest drop in two days since March, although the cryptocurrency was still up 89% in the previous month. Ethereum fell 12%. Smaller XRP and Litecoin coins lose about 18% each.
The fall in cryptocurrencies on Monday saw almost $ 140 billion swept from the entire market. Last week, the overall value of the cryptocurrency market reached more than $ 1 trillion for the first time.
Bitcoin last week hit a record above $ 41,000, swept away by a combination of a weaker dollar, economic optimism and a wave of bullish sentiment towards cryptocurrencies, while large investors and investment banks touted their potential for huge earnings this year.
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Political uncertainty was growing, knocking investors’ risk appetite for assets such as stocks and commodities, as Democrats prepared to impeach Trump for the second time, after his apparent incitement to a right-wing crowd that stormed the Capitol building last week. last.
House Speaker Nancy Pelosi wrote to colleagues on Sunday, saying: “The horror of this president’s continued attack on our democracy is heightened and so is the immediate need for action.”
“The stronger dollar and higher bond yields also caused a drop in the price of Bitcoin and gold this morning,” Rabobank strategists said in a note.
Bitcoin and other cryptocurrencies – as well as many commodities – tend to do the opposite of everything the dollar is doing.
The correlation between Bitcoin and the dollar index is at -0.95, meaning that the two are more likely to move inversely to one another. The correlation is measured between 1.0 and -1.0, with the former signifying a positive correlation – two assets are likely to move in perfect tune with each other – and the latter, the reverse.
The dollar rose 0.4% for the last time against a basket of major currencies, trading at its strongest point in almost two weeks, having hit 33-month lows last week.
Ethereum, the second largest cryptocurrency by market capitalization after Bitcoin, fell 11.4% on the Bitfinex exchange, where turnover was the highest, according to data from Bloomberg. The price remained at around $ 1,128, still within last week’s three-year highs of around $ 1,350.
However, analysts said the pullback is likely to be temporary, given the growing number of cryptocurrency buyers and owners.
“Part of the foam of anarchy supporting Bitcoin after anti-government types invaded the Capitol is diminishing a little bit. But the reason for remaining coins bought in the push of new age technology and everything associated with blockchain technology has not changed much,” Axi said chief market strategist Stephen Innes.
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