Bitcoin Falls as Much as 30% as Investors Sour on Cryptocurrencies

The rapid drop led to billions of dollars of bullish, leveraged bets being wiped out on offshore cryptocurrency derivatives exchanges.

“Many people have been tempted to invest purely because it has gone up in value and they have a fear of missing out,” said Rick Eling, investment director at wealth management firm Quilter. “Bitcoin is a volatile asset, and as we have seen so often in financial markets, boom is almost always followed by bust.”

As of Wednesday morning Eastern time, more than $8.4 billion of liquidations of leveraged bets had taken place during the past 24 hours, including one trader on Huobi, a popular offshore exchange, who lost $67 million in a single liquidation, according to data provider Bybt. The majority of recent liquidations have been from long positions, in which traders bet on an increase in the price of bitcoin or some other cryptocurrency, Bybt data shows.

Such liquidations take place when the market moves against a trader, and the trader isn’t able to exit from the trade or post enough additional funds to meet the exchange’s margin requirements.

“This is indeed a market that has run too far and fast,” said

Joel Kruger,

a currency strategist at LMAX.

Concerns about inflation, which have been weighing on stock and bond markets, is also contributing to the decline, according to Mr. Kruger. “Crypto is considered to be an emerging market, and as such, a risk-correlated market vulnerable to downturns in global sentiment,” he added.

The recent price fall has accelerated after three Chinese entities published a statement that financial institutions shouldn’t accept virtual currencies for payment or provide services using them. Digital assets had already come under fire in recent days, catalyzed by a tweet by

Elon Musk

that

Tesla Inc.

would no longer accept bitcoin as payment due to concerns about its carbon footprint, and another that led to speculation Tesla had sold down its bitcoin holdings.

“When you see headlines like the one about China planning to do a crackdown on the workings of crypto, it definitely shakes the confidence of investors,” said Vasileios Gkionakis, global head of foreign-exchange strategy at Lombard Odier. “These comments by China are likely to also be seen in other countries as well.”

The fall in prices from recent highs has delivered sharp losses, at least on paper, to retail traders who bought in at high prices. Ryan Sheplock, a 24-year-old in Philadelphia, bought one ether at $4,000 and some dogecoin worth about $200 last week at the urging of some friends.

“I became a victim to the hype of buying in and trying to ride the hype to the moon,” Mr. Sheplock said.

He said he put more money into ether because he believes the blockchain network behind it may be of use in the long run. He plans to hold on to his positions in both ether and dogecoin despite the recent slump.

“I’m a big believer in the doge [climbing] to $1. I just feel like the hype around it and the community won’t let it not happen,” Mr. Sheplock said. “That’s the thing with crypto: you can look at graphs all you want but you never know what’s going to happen. One man can tweet something and move the market.”

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com, Caitlin Ostroff at caitlin.ostroff@wsj.com and Alexander Osipovich at alexander.osipovich@dowjones.com