Bitcoin heads for worst week since September as scrutiny builds.

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   Bitcoin has lost a tenth of its value this week, putting it on course for its worst run since a steep sell-off in September, as global regulators turn their gaze towards the controversial cryptocurrency.

Despite a mini-rally on Friday, bitcoin was trading around $32,000 by late afternoon in London — on track for a second consecutive weekly drop after a dramatic rally through the turn of the year.

The move lower had been stoked by industry reports that the same token had been used in two distinct transactions, an event that would have broken a key rule of the market. This was later dismissed by the bitcoin community and analysts, who said that there was no “double spend”, and what was being seen was the normal process whereby the blockchain — the digital ledger that underlies bitcoin — resolves transactions.

“What was perceived as an ill-natured manipulation was in fact a perfectly normative blockchain event,” said Antoni Trenchev, a managing partner at crypto lender Nexo.

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   “Sharp swings in sentiment [are] a risk for cryptos,” wrote UBS analysts in a note to investors this week. “We reiterate our call for extreme caution on cryptocurrency speculation.”

But some investors are dipping a toe in the sector, after a breakneck rally last year that led to bitcoin surging 300 per cent. BlackRock, the world's biggest asset manager, is opening the door to holding bitcoin-linked derivatives in two of its funds, the BlackRock Income Opportunities fund and the BlackRock Global Allocation fund.

In a filing with the US markets regulator this week, BlackRock noted that the use of cash-settled bitcoin futures could involve a high level of illiquidity risk and that future regulatory changes could lead to losses. 

Still, its move reflects what some describe as the growing institutionalisation of the crypto sector. BlackRock’s chief investment officer of global fixed income, Rick Rieder, said in November on CNBC that bitcoin could even replace gold in investors’ portfolios. Some analysts present it as an alternative inflation hedge to the precious metal.
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