No. 2 cryptocurrency Ethereum plunges 50% in 4 weeks

The value of Ethereum, the No. 2 virtual currency by market value, has been falling for weeks. According to market data provider CoinDesk, the currency’s rate against the dollar on Tuesday slipped briefly to touch $183.39, down 13.3% from Monday. It was the lowest level since late May, and down more than 50% from its all-time high of $414.76 on June 12.

Since the beginning of the year, investors have been aggressively pouring money into Ethereum on expectations that the virtual currency could soon overtake bitcoin, the No. 1 cryptocurrency by market capitalization. Ethereum’s value soared from $9.56 at the end of last year to the highest in June — growing more than fortyfold in a little less than six months.

But the heat-up among investors has recently begun prompting selling of the currency. Ethereum’s rates have been highly volatile, and at one point in late June briefly plunged in a “flash crash” to almost zero.

According to CoinMarketCap, another information provider, market capitalization of Ethereum as of Tuesday came to some $18 billion, less than half the $39 billion or so for bitcoin. In mid-June, the total market value of Ethereum expanded to $35 billion, not far from the $40 billion range for bitcoin at the time. Since then, in about a month, value of roughly $17 billion has been lost.

Joined by small investors who had been keen on foreign exchange margin trading, the cryptocurrency market has been steadily expanding. This is partly encouraged by the fact that digital currencies are becoming a common payment method in many countries, accepted for an increasing number of services.

As bitcoin’s exchange rate exceeded $3,000 in June, some investors sold their positions for profit-taking and shifted money to Ethereum and Ripple, another cryptocurrency.

On the other hand, there is as yet no established method for investors to judge whether a rate of a digital currency is expensive or a bargain. Digital currencies often lure large-lot buying and selling, and price fluctuations during the day can be as great as 20% to 30%. For cryptocurrencies, the supply-demand balance is the only factor determining the exchange rate. This is why the market is often driven by speculative trading, letting cryptocurrencies in general remain only a tool of “money games.”

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