UPDATE 4-Bitcoin, Ethereum Crashes as the sell-off shatters the crypto sector

* Bitcoin, ethers drop to 3-1 / 2 month lows; other coins fall

* China curbs are coming on the heels of musky tweets

* Falling prices undermine the argument to hedge Bitcoin inflation (rewrite the first paragraph, add a new comment, update prices)

By Tommy Wilkes, Sujata Rao and Gertrude Chavez-Dreyfuss

NEW YORK / LONDON, May 19 (Reuters). Bitcoin and ether fell to 3-1 / 2-month lows on Wednesday, posting their largest one-day loss since March last year after China moved a day ago to ban financial and payment institutions from providing cryptocurrency services.

At one point during the collapse, nearly $ 1 trillion was wiped off the cryptocurrency’s market cap.

In late morning trading, the market cap was $ 1.65 trillion, according to data tracker CoinGecko.com

Bitcoin, the largest and most well-known cryptocurrency, had already been put under pressure by a series of tweets from Tesla CEO Elon Musk, but the news from China sent it further down. It hit a 3-1 / 2 month low of $ 30,066.

The cryptocurrency is down 54% from a record high of $ 64,895 on April 14. She is also aiming for her first monthly decline since November 2018.

“The sharp drop in Bitcoin prices should not shock the market,” said Gavin Smith, chairman of the board of the Panxora crypto consortium.

“Any asset that has risen as much as Bitcoin over the past year can expect setbacks as some investors are pulling profits, as we are currently seeing. While this is often a great investment opportunity, traders need to keep in mind that Bitcoin is still one emerging asset is great and will continue to see large volatility in price, “he added.

Bitcoin’s demise hit other crypto assets, with ether, the coin connected to the Ethereum blockchain network, falling to $ 1,850, its weakest level since late January. It was last down 26% to $ 2,497. Since hitting a record high on May 12th, the ether has fallen 57%.

The story goes on

The meme-based Dogecoin also fell, losing nearly 26% to $ 0.35, according to Coingecko.

The shares of the crypto exchange Coinbase fell 7.4% on Wednesday. Coinbase’s share price has almost halved from its high on the day it was directly listed in April.

Tesla Inc. also fell 3.8% to $ 555.83.

Cryptocurrency price declines over the past week were triggered by Musk’s reversal when Tesla accepted Bitcoin as a means of payment. His subsequent tweets added further confusion over whether the automaker had lost its ownership of the coin.

China’s announcement on Tuesday to ban financial institutions and payment companies from providing services related to cryptocurrency transactions tightened sales. China also warned investors against speculative crypto trading.

“The crypto markets are currently processing a cascade of messages fueling the bear for price developments,” said Ulrik Lykke, executive director of the crypto hedge fund ARK36.

However, some cryptowatchers predicted further losses, noting that the drop below $ 40,000 was a breach of an important technical barrier that could lead to more sales.

“Widespread deleveraging” has gripped the cryptocurrency markets, said Saxo Bank’s chief investment officer Steen Jakobsen, describing the sell-off as deeper and more widespread than previous episodes.

INFLATION HEDGE?

Investors could leave Bitcoin for gold as well, JPMorgan analysts said, citing positioning data compiled based on open interest in CME Bitcoin futures contracts.

This shows “the steepest and most sustained liquidation” in Bitcoin futures since last October, they announced to clients, adding that this indicates “ongoing cuts by institutional investors”.

Selling off crypto assets at a time when fears of inflation are mounting harms the idea of ​​the asset class as an inflation hedge.

Instead, more traditional hedges have gained ground, with gold rising nearly 6% this month.

The recent sell-off of Bitcoin and other digital currencies has pushed the market capitalization of all cryptocurrencies to $ 1.7 trillion, from a record $ 2.5 trillion earlier this month.

(Reporting by Tommy Wilkes, Sujata Rao in London and Gertrude Chavez-Dreyfuss in New York; additional reporting by Stanley White and Hideyuki Sano in Tokyo; editing by Kim Coghill, Emelia Sithole-Matarise and Andrew Cawthorne)

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