In what analysts see as a selloff, Bitcoin’s value dropped on Monday, dropping around 21% and wiping some $150 billion off the cryptocurrency market. Last Sunday, Bitcoin’s market capitalization hovered at $1.08 trillion. But, by Monday, the value shrunk to $931 billion.
Bitcoin plummeted by 21% over the weekend, its longest slide for over ten months. Despite the plunge, Bitcoin remains up by 89% on a single month basis. Other cryptocurrencies also fell by the wayside, with Ethereum falling 12%, and smaller coins XRP and Litecoin falling by 18% each.
Wild Price Swings
Expectedly, investors saw the $40,000 ceiling as a sign to start taking profits, as the currency doubled from $20,000 to $40,000 in four weeks. Recently, the currency reached an all-time high of $41,962.36, prompting early investors to start the selloff. Simons Chen, executive director of Babel Finance, noted that “The correction we saw was expected as we believe the BTC price surge recently from under $20,000 to $40,000 in the past four weeks will induce sell pressure.” He added that the $40,000 mark probably triggered profit-taking.
Bitcoin enjoyed a resurgence beginning last year as it began enjoying more mainstream appeal. The cryptocurrency attracted large institutional investors, and more online payment companies began accepting it. More importantly, Bitcoin became a potential safe-haven asset and a hedge versus inflation. Investment bank JPMorgan saw the currency’s potential to reach $146,000 long term and compete with gold. However, in order to do that, Bitcoin must shed its volatility. Cryptocurrency is known for wild price fluctuations, and this week just proved that.
However, not all people are warming up to the hottest alt currency. David Rosenberg, economist, and strategist at Rosenberg Research called bitcoin a bubble and warns investors about the risks. Even as Bitcoin rose to $30,000 levels earlier this year, Rosenberg said he took pains to avoid it. He noticed that “The parabolic move in bitcoin in such a short time period, I would say for any security, is highly abnormal.” As such, Rosenberg believed that it is currently the biggest market bubble right now.
With the cryptocurrency rising over 300% in value during the last 12 months, Bank of America called it the “mother-of-all-bubbles” in a recent note. They presented a chart comparing Bitcoin’s rise to that of the 1990s dotcom boom and the 2007-2008 US housing bubble.
Bitcoin Also Carries High Risks
The United KIngdom’s Financial Conduct Authority warned Monday that investments and lending products related to crypto come with “very high risks. Their advice to newcomers? Get ready to lose all your money. The British agency warns people of firms offering high returns for investments in crypto assets, or lending linked to crypto assets. People who take upon those offers should expect to lose all of their money.
Laith Khalaf, AJ Bell’s financial analyst, agreed with the assessment. She said, “The regulator is clearly concerned that the high risks already inherent in crypto assets are being compounded by scam activity, as well as unregulated firms targeting consumers with marketing material that highlights the rewards, but not the potential downside, of investing in crypto assets.”
Long Term Investment
Despite the short term fears, investors still see long term rewards to those who’ll hold on to the currency. In fact, Jehan Chu, founder of trading firm Kenetic Capital, sees the pullback as opportunities for new investors. “This short term correction is both natural and needed, and is a great entry point for long-term investors as we quickly reach $50k this quarter and $100k by year’s end,” he said.
Many analysts agree with JPMorgan that Bitcoin still has a lot to go. Even if BItcoin’s value dropped due to selling off, Chamath Palihapitiya of Social Capital said it will likely go “$100,000, then $150,000, then $200,000. In what period? I don’t know. [Maybe] five or 10 years, but it’s going there.”
Which Way is Bitcoin Going?
Already, retail investors are flocking to BItcoin, assuaging the fear of missing out on its massive payoff potentials. Cryptocurrency exchanges such as Coinbase and Binance reported heightened activity on their platforms, while Google searches for “bitcoin” continue to rise in 2021.
Watch the video from Capital.com discussing if Bitcoin’s recent 20% drop is a buying opportunity:
While BItcoin’s value dropped recently, signs point to a steady increase long-term. Which way do you see Bitcoin going? Is it still going, or will it start going down? Let us know what you think about the most popular cryptocurrency, and if you plan to invest in it. Leave your comments below.