Bitcoin falls after weekend rally pushes token to fresh record

Bitcoin dropped Monday as traders eased up on stimulus-fueled bets that had powered the digital token to a fresh record over the weekend.

The largest cryptocurrency slumped by as much as 9.2% before trading at $56,131 as of 1:04 p.m. in New York, after topping out at $61,742 on Saturday. Bitcoin reached its latest all-time high on optimism that some of the pandemic relief payments in the US will end up chasing the digital token’s towering rally, Yahoo! Finance reports.

“The stimulus news was bid up by everyone in the Bitcoin world over the weekend,” Jeff Dorman, chief investment officer for Arca, an investment management firm specializing in digital assets, said in a phone interview. “Then we came in last night, futures were flat, 10-year was flat, and all of a sudden that started to unwind because there wasn’t nearly as much of a bullish overtone as some of the Bitcoin traders thought there might be.”

Dorman also pointed out how leverage in crypto markets can lead to selling pressure amid broader declines.

“There’s just an insane amount of leverage in the system at all times,” he said. “During any period of exuberance, you see investors borrowing to lever up, and over the weekend we saw all the risk metrics we watch start to really get frothy. Generally, when that starts to happen, it’s only a matter of time before the slightest hiccup starts to liquidate those levered positions.”

The lively debate over the scope for more stimulus-fueled gains, and whether it’s even possible to work out a long-term value for Bitcoin, continues apace. The token has climbed more than 1,000% in the past year, pushed higher by signs of increased institutional and corporate interest alongside the usual speculative demand.

Crypto has seen “some good flow, with traders front running U.S. stimulus checks,” Chris Weston, head of research at Pepperstone Group Ltd., wrote in a note, adding Bitcoin needs to stay above the previous high of just over $58,000 to bolster confidence in a “new bull leg.”