The past year has been one of its kind – a global pandemic, market uncertainty, countrywide lockdowns, travel restrictions etc. Yet, we witnessed one financial asset on the rise – Bitcoin.
However, on Wednesday, Bitcoin plunged as its monthlong slide morphed into a frenzied selloff. The decline had narrowed to below 10% in early afternoon trading. Bitcoin has lost about 40% of its value since April 13.
Crypto analysts are now predicting a bearish trend going forward. Let’s have a look into why the Bitcon is plunging and will the Crypto market rebound?
Bitcoin and its rise
Bitcoin is the world’s most popular digital currency. It allows people to bypass banks and traditional payment methods and is not controlled by any single entity, country or central bank. There are more than 18m bitcoins in existence.
Bitcoin was introduced in 2009. During the time, Bitcoin was valued at $0, and just a few crypto nerds would mine them as a collectible. After 2010 – The Bitcoin Pizza Transaction happened, people looked at it as a currency that could be used to purchase goods and services.
By 2013, Bitcoin gained more popularity and touched $1,000. After the second Bitcoin Halving event took place, the coin rose significantly in value to $19,000. However, there was a minor blip, and after 2018, its value dropped and its price settled at about $5,000 at the start of 2020.
After a steady rally was set off in Oct 2020, the value of Bitcoin touched new heights – crossed $20,000 in Dec 2020, $40,000 in Jan 2021, $50,000 in Feb 2021 and $64,606 in April.
What happened to the price?
Bitcoin’s price plunged by nearly 30% to almost $30,000 on Wednesday after Chinese regulators announced that they were banning banks and payment firms from using cryptocurrencies.
Virtually every cryptocurrency fell after the industry group’s statement. Bitcoin slumped to $30,202 before recovering to $38,038, down 12% on the day, according to Coindesk. Most cryptocurrencies lost between 7% and 22% of their value and shares of Coinbase dropped 5.4%.
However, the selloff started last week after the Tesla founder Elon Musk suspended plans to let customers pay in Bitcoin. Elon Musk, who is seen as a staunch supporter of cryptocurrencies, was also caught in a confusing exchange on Twitter about plans for Tesla’s bitcoin holdings that spooked investors.
How Elon Musk influences Bitcoin?
Musk announced in February that his electric car company Tesla had invested $1.5 billion in Bitcoin. In March, Tesla began accepting Bitcoin as payment. Those actions contributed to the run-up in Bitcoin’s price, and Musk also promoted the digital currency Dogecoin, which also spiked in value.
However, Musk last week said Tesla would stop accepting Bitcoin because of the potential environmental damage that can result from Bitcoin mining. The announcement sent Bitcoin falling below $50,000 and set the tone for the big pullback in most cryptocurrencies.
A number of Bitcoin fans pushed back on Musk’s reasoning. Fellow billionaire Mark Cuban said that gold mining is much more damaging to the environment than the mining of Bitcoin.
Will cryptocurrency rise again?
According to some researchers, the price of cryptocurrencies might not rise again for a while. Galaxy Digital CEO and Chairman Mike Novogratz said, “It’s not going to bounce right back. It’ll consolidate for a while.”
Novogratz said the fall seems like capitulation, where people are selling off their holdings during a market decline so they don’t lose too much of their gains. “It’s going to take a while. The market will consolidate. It will find a bottom somewhere,” he added.
