Cryptocurrencies, especially bitcoin, were hit by a sudden flash crash early on the morning of Sunday, April 18, tanking prices. The plunge, which wiped out around $300 million from the broader crypto market, has caused one expert to warn of a "washout" ahead.
The price of bitcoin, which had been on a downward trend for the past week towards $60,000 per bitcoin, dropped by more than 10 percent to just over $50,000. The price of the crypto has since rebounded somewhat, trading at around $55,000 per bitcoin. But that's still some distance from the near $65,000 high it saw in recent weeks.
The immediate cause of the price crash is not immediately clear. That said, some point to power outages in China. These may have knocked those that maintain the bitcoin network, known as miners, offline. This is on top of unconfirmed reports of a regulatory crackdown on bitcoin and cryptocurrencies in general.
The flash crash is the latest indicator that the crypto market remains wildly volatile. Enthusiasm for cryptocurrencies seemed to peak last week after American crypto exchange Coinbase went public at a valuation of $86 billion. This was followed by a 500 percent rally in Dogecoin – a cryptocurrency created as a joke back in 2013.
Bitcoin bull warns of a crypto washout
Following the flash crash, Galaxy Digital CEO and known bitcoin bull Mike Novogratz warned of a possible crypto "washout" in an interview with Marketwatch. He pointed towards the fervor for "alt coins" – alternatives to bitcoin – such as dogecoin and XRP, ahead of Coinbase's offering, as contributing to the volatility (Related: The bitcoin bubble: Why speculative bitcoin buy-ins now point to a disastrous bitcoin crash.)
"In the next week, certainly we could have some volatility because of the excitement around Coinbase," Novogratz, a former Goldman Sachs' partner, said.
Ahead of Coinbase's listing, bitcoin touched a record near $65,000 value. Meanwhile, dogecoin surged to a record over 10 cents, representing a more than 20 percent daily surge for the asset. Initially created as a joke back in 2013, dogecoin has seen gains thanks in part to support from people such as Elon Musk. The latter dubbing it "the people's crypto."
"I've seen a lot of weird coins like dogecoin and even XRP have huge retail spikes, which means there’s a lot of frenzy right now," he added. "That never ends well, and so we'll probably have a washout at one point."
Confidence in crypto still remains strong, despite warnings
Despite the market's volatility and warnings of a washout, confidence in cryptocurrencies remains strong.
Even Novogratz, who made the warning, remains bullish on bitcoin, Coinbase and crypto as a whole. He called Coinbase's IPO "monumental" for the crypto industry.
The San Franciso-based crypto exchange closed up more than 30 percent from its $250 reference price on Wednesday, April 14. At one point, it even touched a market value above $100 billion. It eventually closed at $328.28, off from its intraday peak at $429.54.
Coinbase's IPO has been called crypto's "Netscape moment," referring to the 1995 IPO of Netscape, which is generally seen as the start of the 1990s dotcom boom. Some crypto market watchers have predicted that a similar "blockchain boom" is coming following the recent IPO.
In addition, not all cryptocurrencies were hit during the recent flash crash. Even as the values of other crypto's dropped, dogecoin's value has held steady.
The meme-based crypto has been surged by around 3000 percent since October. The rise is primarily seen as being driven by its low price compared to more established cryptocurrencies, such as bitcoin and ethereum, attracting investors who have been priced out of the latter.
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