Business

Bitcoin's big wipeout erased $44 billion in virtual value in January

Bloomberg, Kyodo

Bitcoin is proving that cryptocurrencies can erase wealth as fast as they create it.

Its January slide knocked $44.2 billion (about ¥4.8 trillion) off the $200 billion in market value generated in all of last year, the biggest one-month loss in dollar terms in the short history of digital assets.

“Once we got to $10,000, crypto had adopted this Teflon persona of late that it’s always going to find a base and go back up again,” Stephen Innes, head of Asia-Pacific trading at Oanda, said by phone from Singapore. “When we’re talking in the realm of riskier assets, and something shaves off 50 percent of its value, it tells me there’s going to be an extension lower. The sad thing is a lot of people will be burned, because they will continue to buy dips.”

Since reaching a peak of almost $20,000 in early December after the introduction of futures contracts on regulated exchanges in the U.S., a series of negative news has buffeted bitcoin and rival cryptocurrencies, with losses intensifying since the start of 2018.

Innes sees the cryptocurrency tumbling further to the $5,000 to $6,000 range before eventually recovering to a level between $10,000 and $15,000. That road will almost certainly be bumpy, given that global authorities are only going to increase their scrutiny of the cryptocurrency industry from here on, he said.

A record ¥58 billion heist of an alternate coin at Tokyo-based exchange Coincheck Inc. on Jan. 26 upped the pressure on regulators to probe business practices within the largely unregulated industry, while authorities in trading hotbed South Korea continue to debate more serious measures including a ban on such exchanges.

Account holders of the exchange are planning to form a group to negotiate reimbursements after it lost the money in a hacking attack.

A few dozen people are expected to become the first members within the group, which will also share information among members and negotiate with Coincheck for an early resumption of its withdrawal services its suspension due to the largest-ever cryptocurrency heist on Jan. 26.

A customer in his 40s called on other users to join the group via his Twitter account Wednesday, which has over 800 followers. A meeting on forming of the group will be held Saturday in Tokyo, he said.

While some 260,000 customers have lost deposits in the theft, Coincheck’s suspensions are expected to push up the total.

The exchange has halted the deposit, withdrawal and trading of NEM as well as trading of other cryptocurrencies and yen.

It has said it will compensate NEM holders to the tune of ¥46 billion, but worries have spread because the amount is low at current exchange rates and details of the compensation have not been announced.

Coincheck provided police with system logs Wednesday, and the police are gathering information from its employees. They are also expected to open an investigation into the case, suspecting it violated the unauthorized computer access law.

The hackers have dispersed the stolen NEM coins to around 20 digital addresses in an apparent attempt to avoid being traced.

NEM.io Foundation Ltd., a Singapore-based nonprofit that promotes NEM blockchain technology, has said its team “tagged” the stolen tokens as tainted funds, making it easy to confirm when it’s withdrawn or deposited via regulated trading platforms.

The popularity of digital currencies has increased expectations of their wider use, but the latest heist has sparked debate on how to regulate the decentralized technology.