Trading lessons. Bitcoin Plunges, is it the same as 2017?

Bitcoin plunged on Thursday in a sell-off that saw other digital assets fall more than 20%, a slide likely to stoke speculation about the durability of the latest boom in cryptocurrencies.

The largest token fell as much as 14% in Thursday trading, heading for one of its worst days since the pandemic-spurred liquidation in March.

The rout sharp fall began hours after Bitcoin rose to within $7 of its record high of $19,511, the culmination of a more than 250% surge in past nine months. Fears over tighter crypto regulation and profit-taking after a frenetic rally were among the reasons cited for the sudden drop.

The sell-off gathered pace late Wednesday after Coinbase Inc. Chief Executive Officer Brian Armstrong tweeted about speculation the U.S. is considering new rules that would undermine anonymity in digital transactions.

“News that the Trump administration may clamp down on crypto might have been a trigger for the drop,” said Antoni Trenchev, managing partner of Nexo in London, which bills itself as the world’s biggest digital-coin lender. “But any asset that rallies 75% in 2 months and 260% from the March lows is allowed to undergo a correction.”

Other coins including XRP tumbled as much as 27%, according to prices compiled by Bloomberg.

Soravis Srinawakoon, chief executive of Bangkok-based Band Protocol, said the plunge in crypto was healthy.

“This is just a normal pull back after seven weeks straight of Bitcoin in the green, due to many people over-leveraging.”

Small corrction or crash?

The price correction may be a function of crypto traders moving larger volumes of bitcoin to exchanges — where they can be more easily sold at a better price — when the token approached $20,000.

"It feels more and more like we're hitting a Bitcoin tipping point," said John Kramer, a trader at the crypto trading firm GSR. "In fact, a cooldown is to be expected. But with more well-known fund managers and institutions re-examining their Bitcoin theses every day, it's getting harder to not take the asset more seriously."

The sharp drop is yet more proof of the cryptocurrency's volatility and why warns investors looking to buy into it that they need to do their research and be careful beforehand.

According to bitcoin analysts Glassnode, the number of investors holding at least 1,000 bitcoin reached an all-time high this week, with the concentration of large sums of the cryptocurrency in the hands of a small number of investors giving them a significant influence on the market.

Another analyst, Ki Young Ju, wrote on the social media platform Twitter that these holders of large sums of bitcoin had sold off their holdings, causing the price to fall.

Despite the losses, Bitcoin - which remains the most valuable and popular digital currency - has increased its value by more than 100% this year.

Some hedge fund managers have suggested it could hit $100,000 (£75,000) in 2021.

Brian Estes, a chief investment manager at Off The Chain Capital, said: "I have seen Bitcoin go up 10x, 20x, 30x in a year. So going up 5x is not a big deal."

Others have warned such predictions are crazy. You decide?