A frenzied few weeks of rapid Bitcoin speculation, which saw the price rocket to $US3000 a coin, looks to be easing.
The entire cryptocurrency market was rallying up until last week, when it was worth around $US106 billion. But a dramatic sell-off on Friday saw the cryptocurrency market shed around $US6 billion in the space of a few hours.The top 10 cryptocurrencies are stabilising after a sharp correction.
The sell-off came as Bitcoin investors look to hedge against the "irrational exuberance" that has gripped the market, prompted in part by a flood of new, speculative capital from optimistic newcomers.
But the top 10 cryptocurrencies appear to have stabilised over the weekend.
On Sunday afternoon the combined total of Bitcoin, ether and a host of new tokens was around $US99.3 billion, up from a low of $US91.3 billion, data from CoinMarketCap shows.
Eighty of the top 100 cryptocurrencies suffered double-digit declines in the past week.
"Many of these new traders are retail traders that have little knowledge of crypto-assets or trading in general," said Marius Rupsys, a cryptocurrency trader and co-founder of fintech startup InvoicePool.
Bitcoin has experienced a rush of interest as investors look to get their hands on new cryptographic tokens released via Initial Coin Offerings (ICOs).
Developers are releasing hundreds of new assets (called coins or tokens) that might power yet-to-be developed peer-to-peer blockchain networks.
These tokens can only be bought using Bitcoin or ether – the asset that powers another widely-adopted network, Ethereum.
The appetite for these tokens has been so voracious that developers have been able to raise more than $US1 billion in a few minutes.
But waves of selling are gripping newly-released tokens as speculative traders cash in on the initial run-up in price.
IOTA – which hopes to develop a "blockless" distributed ledger – listed on exchanges last week, breaking records by exceeding a $US1.5 billion market capitalisation on its first day of trading.
However, IOTA was caught up in the sharp correction as investors scooped profits and the price of the token plummeted more than 40 per cent on Friday.
"I've been making the bubble argument for weeks," Jacob Eliosoff, a trader who runs a cryptocurrency fund told Coindesk. "Doge, Dash, Litecoin, Stellar, Gnosis ... practically every coin has surged.
"[This is a] sign of unthinking buyers that will sell as soon as the tide turns."
The frenzied activity within Bitcoin markets saw the collective market cap rocket to an all-time high of $US117.2 billion on June 12, a rise of more than 500 per cent year to date.
Traders are also paying attention to the ongoing scaling debate within the community.
The Bitcoin network can process about seven transactions a second, but people are trying to send many more than that. The network has a serious backlog which is only going to get worse.
Developers and investors are discussing two solutions to the problem. They can either increase the blockchain size or perhaps split Bitcoin into two.
Both these options play havoc with the fundamentals for the price of Bitcoin and its related cryptocurrencies. Speculators are having a hard time positioning effectively ahead of whatever gets decided, giving the markets another layer of volatility.