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By Tom Wilson and Tom Westbrook

© Reuters/DADO RUVIC FILE PHOTO: A representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken

LONDON/SINGAPORE (Reuters) - Bitcoin tumbled 17% on Tuesday, sparking a sell-off across cryptocurrency markets as investors grew nervous at sky-high valuations and leveraged players took profit.

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The world's biggest cryptocurrency suffered its biggest daily drop in a month, falling as low $45,000. Bitcoin was last down 11.3% at 0939 GMT.

The drop extended a slump of nearly a fifth from a record high of $58,354 hit on Sunday - though bitcoin remains up around 60% for the year.

"The kinds of rallies we've been seeing aren't sustainable and just invite pullbacks like this," said Craig Erlam, senior market analyst at OANDA.

Ether, the world's second largest cryptocurrency by market capitalisation that often moves in tandem with bitcoin, also dropped more than 17% and last bought $1,461, down almost 30% from last week's record peak.

Cryptocurrency markets have been running hot this year as big money managers and companies begin to take the emerging asset class seriously, piling money into the sector and driving confidence among small-time speculators.

A $1.5 billion investment in the crytocurrency by electric carmaker Tesla this month has helped vault bitcoin above $50,000 but may now lead to pressure on the company's stock price as it has become sensitive to movements in bitcoin.

Rising government bond yields over recent days have hit riskier assets, spilling over into leveraged bitcoin markets, said Richard Galvin of crypto fund Digital Asset Capital Management.

"Markets were quite hit from a leverage perspective so that didn't help," he added.

U.S. Treasury Secretary Janet Yellen, who has flagged the need to regulate cryptocurrencies more closely, also said on Monday that bitcoin is extremely inefficient at conducting transactions and is a highly speculative asset.

Critics say the cryptocurrency's high volatility is among reasons that it has so far failed to gain widespread traction as a means of payment.

Analysts said key price levels have played a large part in determining the direction of crypto markets.

"Because we're so lacking in fundamentals, it's the big figures that have proved to be support and resistance points," said Michael McCarthy, chief strategist at brokerage CMC Markets in Sydney.

"$50,000, $40,000 and $30,000 are the key chart levels at the moment. If we see it heading through $50,000, selling could accelerate."

(Reporting by Tom Westbrook; Editing by Jacqueline Wong and Nick Macfie)

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What does a positive Coinbase premium mean for the price of Bitcoin? – Latest News, Breaking News, Top News Headlines

Bitcoin’s price action on Coinbase has stood the test of time, especially as statistics from crypto-exchange users have often highlighted institutional participation in the market. Bitcoin’s current bull run is largely influenced by demand and institutional buying. By extension, price action on Coinbase and other metrics can also be seen as signaling traders’ sentiment.

Bitcoin movement

In this regard, a key measure is the Coinbase premium. With Bitcoin’s price strictly below $ 50,000 at the time of publication, the Coinbase premium has turned positive, based on data from CryptoQuant.

Source: Twitter

Since the Coinbase premium has turned positive, a positive change in the price of Bitcoin in the short term can be projected. Here it should be mentioned that for a while the same metric was negative.

Additionally, another metric that looked extremely bullish at the time of writing was the output profit ratio spent.

Source: Twitter

Based on Glassnode’s SOPR chart, the bull run may make a phased return. Highlighted regions in the attached graph indicate points where the bottom and top have been reset. This happened in mid-January, the last week of January, and February 26, 2021. For the same, there are a few signs to watch out for and each would support the Bitcoin narrative more.

One of the main signs is the still positive Coinbase premium. Other signs from miners include an increase in entry by miners on major exchanges, with the same selling pressure fueling Bitcoin. When the selling pressure peaks, the price drops as it did from the $ 58,640 level.

Another sign is the complete reset of Bitcoin Futures funding rates. The finance rate resets with the same underline as the lows. And Bitcoin highs are also resetting. It is common for traders to bet on high leverage, long credit. However, the cycle is over when the volume increases and the price of Bitcoin pushes the leverage even higher.

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