Bitcoin Plunges 20% -- Is the Rally Over?

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It's been a tough week for cryptocurrencies in general, and bitcoin in particular. After reaching an all-time high of almost $20,000 just a week ago, bitcoin hit a low of $10,400 on Coinbase before rebounding. Here's where bitcoin sits now, and what investors need to know today.

Today's cryptocurrency prices

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Here's a look at the five largest cryptocurrencies by market capitalization, and how much each has changed over the past 24 hours.

As you can see, cryptocurrency prices are down across-the-board. There are several potential catalysts propelling that downward trend. Just to name a few:

  • Demand from key cryptocurrency markets South Korea and Japan has fallen significantly.
  • The recent advent of futures trading may be putting pressure on bitcoin's price. In fact, CME bitcoin futures triggered the 20% downward limit on Friday morning.
  • Charlie Munger, vice chairman of Berkshire Hathaway, made negative comments about bitcoin (more on that in a bit).
  • Coinbase transaction times have gotten much longer in recent days. The exchange is warning customers that "wire deposits and withdrawals may be delayed by up to five business days," although there are several reports of customers waiting much longer.
  • Finally, keep in mind that even after this dip, bitcoin is up roughly 1,300% this year. Profit-taking could be a major factor.

Charlie Munger's harsh warning about bitcoin

Speaking at the University of Michigan on Nov. 30 (but the interview was just posted publicly Wednesday), Warren Buffett's right-hand man Charlie Munger called bitcoin "total insanity."

"I think it is perfectly asinine to even pause to think about them," Munger says. "It's bad people, crazy bubble, bad idea, luring people into the concept of easy wealth without much insight or work."

Munger went on to say that people should avoid bitcoin "like the plague."

Bitcoin stocks are tanking as well

The stock prices of several companies that invest in cryptocurrencies or related assets and businesses have risen tremendously lately, so it shouldn't come as much of a surprise that they're are falling now.

For example, the Bitcoin Investment Trust (NASDAQOTH: GBTC), which allows investors to indirectly own bitcoins, is down by 38% over the past five days. Riot Blockchain (NASDAQ: RIOT), which invests in cryptocurrencies and related assets (and until recently was a struggling biotech company) is down more than 23%. And Siebert Financial (NASDAQ: SIEB), which soared recently after announcing a partnership with Overstock.com that involved forming a cryptocurrency exchange platform, is off by 10% today.

This continued volatility in bitcoin, other cryptocurrencies, and the stocks of any companies involved with them or their underlying technologies, is a reminder that these are still very speculative assets, and should be treated as such. I've said before that investors shouldn't put any money into cryptocurrencies that they're not willing to lose, and the same goes for the stocks mentioned here.

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Matthew Frankel owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.