Saturday, September 18, 2021
Bitcoin Why Bitcoin ($BTC) plunged and the cryptocurrency's price outlook now

Why Bitcoin ($BTC) plunged and the cryptocurrency’s price outlook now

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The Bitcoin rollercoaster is back on the dip. The cryptocurrency fell by as much as 15% Sunday with rival coins like Ether and XRP also plunging.

The retreat came after Bitcoin hit a record high of more than $64,000 Wednesday as the stock-market debut of the U.S.’s largest exchange for the tokens, Coinbase Global Inc., stoked enthusiasm for all things crypto.

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While prices steadied later Sunday and in early Asia trading Monday with Bitcoin holding around $57,000, that’s still down about 12% from last week’s intraday peak.

So what’s sparked the slide?

As is often the case — especially with assets as opaque as cryptocurrencies where it’s often unclear who is selling or buying — there isn’t one answer. Analysts point to a grab bag of reasons.

As digital assets make further inroads with both retail and institutional investors, regulators across the world are taking a closer interest.

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On Friday, the Turkish central bank said it would ban their use as a form of payment from April 30 and would prohibit companies that handle payments and electronic fund transfers from processing transactions involving crypto platforms.

There was also online speculation over the weekend that the U.S. Treasury is poised to crack down on money laundering carried out through digital assets. The Treasury declined to comment.

Other sources of regulatory pressure include central banks’ plans to create digital currencies such as China’s for the yuan, and the ban of cryptocurrency mining in Inner Mongolia, long an industry favorite because of its cheap power.

“We will see more regulation coming,” Eva Ados, chief investment strategist at asset manager ERShares, said on Bloomberg TV, warning investors to be “very careful.” “We think there is going to be even more volatility going forward.”

Any big rally offers potential for the market to get ahead of itself.

That’s the view of Galaxy Digital founder and long-time crypto bull Michael Novogratz, who wrote on Twitter he sees the retreat as a healthy correction.

Other things could be adding to the mix. Industry news site CoinDesk reported Saturday that power outages in parts of China had knocked out a significant amount of Bitcoin mining capacity, which reduced the overall processing power of the cryptocurrency’s network.

There’s also the timing.

“Bitcoin goes crazy on weekends because it’s one of the few markets open to trade in,” Kyle Rodda, a Melbourne-based market analyst at IG said. “And it’s lost some buying support.”

How significant are the drops?

Given the frequent warnings from mainstream financial figures of a speculative mania in cryptocurrencies, any substantial drop reawakens memories of the 2017 crash. Back then, Bitcoin fell from more than $19,000 to under $4,000 by the end of 2018.

While the current retreat is notable, it’s not on that scale. Bitcoin is still 93% higher than it was in January. Volatility is routine for the asset class: the 15% intraday drop on Sunday was only the biggest since February.

Ether, which fell as much as 18% before closing 9.4% lower on Sunday, is up more than 200% this year.

What’s the price outlook?

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