The cryptocurrency tumbled below $30,000 – a price point it blitzed through at the start of this year – on Monday night, leading analysts to predict the start of a bear cycle. Its price decline, as measured over a 24-hour period, was not much in percentage terms. But the $30,000 figure itself is considered a key price support level by institutional investors. That barrier could determine the cryptocurrency’s price trajectory in the short term, they say.
- Bitcoin price fell below $30,000 on Monday but bounced back this morning.
- The drop below $30,000 had some investors questioning whether the cryptocurrency will enter a prolonged bear cycle, as in the past.
- Multiple reasons have been put forward to explain Bitcoin’s price decline.
- Estimates for future Bitcoin prices range from a low of $10,000 to a high of $50,000 by the end of this year.
Bitcoin price’s stay below $30,000 was short lived, however. At 1:06 PM UTC this morning, the cryptocurrency had bounced back to $31,547.88, a jump of 6.23% from its price 24 hours ago. After sliding to a low of $1.174 trillion on Monday, the total market capitalization of cryptocurrency markets also recovered to $1.27 trillion as of this writing. With a market cap of roughly $557 billion, Bitcoin accounts for approximately one-half of the total valuation of cryptocurrencies and sets the price momentum for other coins in the ecosystem.
Among the top four cryptocurrencies by market cap, the price for Ethereum (ETHUSD) fell by as much as 9.6% to $1,722.81 on Monday before recovering to $1,904 this morning. Binance Coin (BNBUSD) was hammered with a price drop of 12% during the same period on Monday. As of this writing, it was up by 7.5% to $284.95 from its price 24 hours ago.
While volatility is par for the course for crypto investors, the recent turmoil in Bitcoin prices has occurred during a period of spotlight on cryptocurrencies. Bitcoin’s price movements mirror those of the broader stock market. But its returns are less than stellar as compared to other investing venues. For example, returns for the S&P 500 are estimated at 15% till date for 2021. Bitcoin had returns of approximately 2% after it fell below $30,000.
In a low interest rate environment where investors are pouring money into risky assets, Bitcoin’s price gyrations could also have implications for future money flows into cryptocurrencies.
Why Did Bitcoin Price Fall?
It is difficult to identify the exact cause for Bitcoin’s declining fortunes. Analysts and commentators have cited a series of events over the past couple of months that have successively dragged down prices.
For example, the price hit its first roadbump after Tesla, Inc. (TSLA) CEO Elon Musk tweeted that his company would not purchase more Bitcoin for its treasury due to concerns over the environmental impact of mining the cryptocurrency. Tesla had announced a $1.5 billion investment into the cryptocurrency in January. Then, China’s crackdown on Bitcoin miners, and its government’s subsequent warnings to fintech institutions and banking institutions, caused further damage to the price.
The tightening of a regulatory noose around a largely unregulated cryptocurrency ecosystem is also being cited as a possible reason. The European Union (EU) is planning to make crypto transfers traceable by requiring financial institutions to collect details on senders and recipients. The measure could bring crypto in line with regular transfers and negatively affect its attractiveness as a pseudonymous asset free of government control.
At a Senate hearing last week, Fed chair Jerome Powell said that cryptocurrencies had “completely failed” to become a mode of payment and that stablecoins did not have an “appropriate framework” in their current form to become a safe asset.
A consequence of this is that major players within the crypto ecosystem are beginning to feel the heat. The New Jersey Bureau of Securities served a Cease and Desist order to BlockFi, a crypto lending firm, to stop accepting customers for its interest accounts.
The events have played into investor fears about an already volatile asset class and triggered a selloff similar to the one that occurred in the stock market.
“There’s a lot of unwinding going on. A lot of deleveraging. And that’s usually not good for short-term prices,” said Mark Yusko, CEO of Morgan Creek Capital, a firm that offers Bitcoin funds to investors, in a conversation with online publication Coindesk.
Where Does Bitcoin Price Go From Here?
A deleveraging by investors has the potential to cause further price declines and volatility in…
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