Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 13, 2018.
Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 13, 2018. REUTERS/Dado Ruvic/Illustration/File Photo

A continuing bloodbath of cryptocurrencies has its apparent origin in the unexpected support for blockchain-based currencies from the International Monetary Fund (IMF), some observers feel.

Cryptocurrencies are plummeting across the board. Bitcoin on Tuesday fell 7 per cent to $4,387, having lost almost a third of its value in a week.

The premier blockchain currency is trading below $5,000 for the first time in 13 months, skimming the lowest level since October last year.

The plunge is from the all-time high of $19,511 that it hit in last December, before sliding to $13,500 at the start of this year.

"The crypto bloodbath continues," said Neil Wilson, the chief market analyst at Markets.com told The Guardian. "Things look like they only get worse from here. Where is the incentive to buy? It does rather look like the bottom is coming out of this market."

One of the immediate causes of the crash is the US Securities and Exchange Commission's action against two cryptocurrency startups that staged initial coin offerings, or ICOs, selling cryptocurrency tokens to the public, according to some media reports. Airfox and Paragon Coin agreed to pay civil penalties for conducting token sales last year without registering them as securities offerings.

Digital Currency System

The development sparked warnings from some central bankers and JP Morgan boss Jamie Dimon who declared in September 2017 that bitcoin was a fraud that would ultimately blow up.

But IMF chief Christine Lagarde's call for central banks to look into issuing sovereign cryptocurrencies is making investors wary of private blockchain currencies. Speaking at the Singapore Fintech Festival, Lagarde sought to make a case for governments to support digital currencies as private players do not have the credibility to offer cryptocurrency services.

She wanted national governments to step in to prevent the digital currency systems from becoming a haven for fraudsters and money launderers.

Sweden's central bank has run some tests and the IMF has credited Canada, China and Uruguay as also going ahead with plans to provide a digital currency, observers say.

Lagarde said central banks could take over the processing of transactions while private-players could continue to providers innovative services to customers.