The dramatic pullback in bitcoin and other cryptocurrencies comes as a flurry of negative headlines and catalysts, from Tesla CEO Elon Musk to a new round of Chinese government regulations, hit an asset sector that has been characterized by extreme volatility since its inception. .
The flagship cryptocurrency fell to more than three months on Wednesday, dropping to around $ 30,000 at one point for a decline of more than 30% and continuing a week of selling in the crypto space. Ether, the main coin of the Ethereum blockchain network, also fell sharply and fell below $ 2,000 at one point, falling over 40% in less than 24 hours.
The recent slide is a reversal from the dramatic rise that began in the second half of last year. The price of bitcoin is still up more than 200% since September, the product of a dramatic bullish rally triggered in part by hedge fund managers, banks and other companies that appear to be embracing cryptocurrency.
“A lot more people own crypto. Crypto has crept into the pockets of our entire society and you’ve had a confluence of events – a combination of Tax Day, Elon Musk tweets, etc., where you started. to break down the positivity into the price action, and now we have a liquidation event, ”longtime bitcoin bull Mike Novogratz said on CNBC’s“ Squawk Box ”Wednesday.
Institutional support retreats
Part of the reason for bitcoin’s weakness appears to be at least a temporary reversal of the theory of broader acceptance of cryptocurrency.
Earlier this year, Musk announced he was buying more than $ 1 billion for his automaker’s balance sheet. Several payment companies have announced that they are upgrading their capabilities for more crypto stocks, and the big Wall Street banks have started working on crypto trading teams for their clients. Coinbase, a cryptocurrency exchange company, went public via direct listing in mid-April.
However, Musk announced last week that Tesla would no longer accept bitcoin as a payment method, citing environmental concerns. He suggested on Wednesday that Tesla was not selling its existing bitcoin wallet, using emojis on Twitter to say the company had “diamond hands.”
And Coinbase, which topped $ 400 shortly after its first trade on April 14, quickly ditched those gains and fell nearly $ 220 per share on Wednesday morning. Its direct listing date is also the day of Bitcoin’s most recent record.
Additionally, a new report from JPMorgan said that, based on futures contracts, institutional investors appear to be moving away from bitcoin and back to gold. Bitcoin is often touted as a potential replacement for traditional metal as a store of value.
A risk-free exchange?
The weakness is not isolated in crypto, suggesting that the moves could be part of a larger investor rotation away from more speculative trades.
Technology and growth stocks, many of which have significantly outperformed the market as a whole over the past year. coronavirus pandemic, have also experienced difficulties in recent weeks.
The Ark Innovation ETF, a high-growth equity fund led by star fund manager Cathie Wood, is down more than 30% from its February highs. On Wednesday morning, the highly technological Nasdaq Composite fell 6.9% from its last closing high on April 26. The Russell 2000 small cap is down 5.6% over the same period.
The declines also coincided with the tax payment deadline, which could have sparked selling pressure as investors sought cash to repay capital gains taxes.
Bitcoin and associated assets have also come under intense scrutiny from regulators around the world as they have become a larger part of financial markets.
“We believe the government’s crackdown on cryptocurrencies may trigger another ‘crypto winter’ and curtail business activity. A more severe crackdown on crypto is possible in many developing countries that may view crypto as a threat. threat to their fiat currencies and their monetary system, ”Bernstein’s Harshita Rawat said in a note Tuesday.
China, which is developing its own government-run cryptocurrency, on Tuesday reaffirmed its rules against other digital currencies, prohibit financial companies from providing crypto trading services.
In the United States, the new chairman of the Securities and Exchange Commission, Gary Gensler, said earlier this month that he believes regulators should be “technologically neutral,” but that more consumer protection is needed on crypto markets.
The rise of dogecoin, which started out only as a joke before gaining popularity with Musk’s help, could also have hurt the overall credibility of the crypto market. Some of the movements in smaller, less developed coins suggest that the cryptocurrency bull market was linked to the rise in speculative day trading in stocks instead of increased institutional interest.
Other less serious cryptocurrencies have also attracted increased interest in recent weeks. On Monday, Barstool Sports founder Dave Portnoy announced that he had purchased $ 40,000 of a cryptocurrency called safemoon, which he described as a “coin.”
“It’s early. If it’s a Ponzi, go downstairs,” Portnoy said in a video posted to Twitter.
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