Bitcoin is aiming for the worst week since September as scrutiny builds

Bitcoin has lost a tenth of its value this week, putting it on track for its worst run since a steep sell-off in September, as global regulators turn their stares toward the controversial cryptocurrency.

Despite a small rally on Friday, bitcoin was trading at around $ 32,000 by late afternoon in London – on track for a second consecutive weekly drop after a dramatic rally through the turn of the year.

The lower move had been hampered by industry reports that the same ticket had been used in two different transactions, an event that would have broken a key market rule. This was later dismissed by the bitcoin community and analysts, who said there was no “double spend”, and what was being seen was the usual process where the blockchain – the digital ledger underpinning bitcoin – resolves transactions.

“In reality, what was considered bad treatment was a completely normative blockchain event,” said Antoni Trenchev, managing partner at crypto lender Nexo.

Weekly% move column chart showing Bitcoin on track for worst week since September

Many professional investors stay away from crypto assets because of their price volatility and lack of fundamentals like profit or assets to build an appraisal on.

“Sharp swings in feeling [are] risk to cryptos, ”UBS analysts wrote in a note to investors this week. “We reiterate our call for extreme caution on cryptocurrency speculation.”

But some investors are dipping toes in the sector, after a cut-down rally last year that led to bitcoin surging 300 percent. BlackRock, the world’s largest asset manager, is opening the door to hold bitcoin-related derivatives in two of its funds, the BlackRock Income Opportunities fund and the BlackRock Global Allocation fund.

In a filing with the US markets regulator this week, BlackRock noted that using the future of bitcoin settled by cash could involve a high degree of incapacity risk and that future regulatory changes could result in losses.

Yet its move reflects what some describe as the increasing institutionalization of the crypto sector. BlackRock’s global fixed income chief investment officer Rick Rieder said in November on CNBC that bitcoin could even replace gold in investor portfolios. Some analysts present it as an inflationary alternative to the precious metal.

BlackRock declined to comment.

“Bitcoin is a global macro asset and I believe more and more traditional asset managers are realizing its value as a portfolio hedging tool,” said Marc Bernegger, board member of digital asset manager and broker Crypto Finance. “This is good for bitcoin because it means more liquidity and a healthier market.”

The UK Financial Conduct Authority and the European Central Bank argued last week that stricter regulations should be adopted towards cryptocurrencies.

ECB president Christine Lagarde said at a conference that bitcoin was a “highly speculative asset” and condemned the criminal activity that is often associated with the market. Janet Yellen, Joe Biden’s nominee to be the next US Treasury secretary, raised hopes that U.S. regulators could move to “cut” the use of cryptocurrencies.

“More regulation is quite evident because bitcoin is becoming much more relevant for the financial system,” said Mr Bernegger.