After Topping $500, Bitcoin Is (Again) Plunging On Extreme Volume

It appears a double in a week has prompted - just as we saw yesterday - some more profit-taking in Bitcoin as after topping $500 earlier today, the virtual currency has plunged (considerably more than yesterday) to $368 in late US trading as a high volume selling program was unleashed on the virtual currency.


As we noted during yesterday's plunge,

To be sure, there is nothing wrong with profit taking after such a parabolic move, however we were under the impression that the kind of furious block selling - which is intended to take out the entire bid stack and reprice an asset to a lower baseline - was reserved solely for gold, courtesy of the BIS.


It appears Virtu, or the NY Fed, may have finally noticed the dramatic surge in this alternative currency. What happens next will be up to the influx of new Chinese buyers who as we predicted two month ago when BTC was $230, have nearly doubled the value of bitcoin in two months in order to bypass China's tightened capital controls.

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However, someting else caught our eye.

While the recent rise (and rapid acceleration) in Bitcoin prices have become more mainstream since we suggested Chinese capital-control-fleeing money may find the virtual currency a useful conduit, something odd has been going on in fiat currency alternatives...

Before The Fed stopped its direct money-printing in October 2014, gold and bitcoin were highly correlated, perhaps rightfully reflecting the ebbs and flows of the USD's reserve currency strength (or weakness) as well as various crisis moments. However, as the chart below shows, since the end of QE3, the correlation regime between gold and the virtual currency has entirely flipped - most notably in the last week or two...

Of course, these gold 'prices' merely reflect the machinations of various paper-promise-trading manipulators amid surging physical demand, but still, we noticed one interesting point of inflection.

Since the end of QE3, the relative price of gold has surged relative to bitcoin and now roundtripped to pre-QE3 levels...

Is this another switching moment as alternative currency seekers rotate back to a 'relatively' cheap gold? Or is something else going on here?

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With this kind of volatility, we are curious how long before a new generation of traders, the same who are currently watching paint dry in equities and FX courtesy of a seemingly endless short squeeze, migrate to this asset class which suddenly is boasting the best volatility on the planet, if only for the time being.


Charts: Bloomberg &