Bitcoin was on the verge of entering a bear market on Tuesday, as the volatile crypto asset suffered a double-digit drop over the past 24 hours. A single bitcoin BTCUSD, -12.79% was trading at $ 47,944.40, down 10%, on CoinDesk, representing a slide of about 18% for the popular digital asset since its surge over the weekend to a record high of $. 58,332.36. Cryptography n. The world’s # 1 had fallen at least 20% from that recent peak at one point in the past 24 hours, meeting the commonly used definition for a bear market.
To be sure, bitcoin swings are not unusual, but crypto’s reputation for volatility is one reason naysayers argue that it is unsuitable to serve as a medium of exchange. Why has the price of bitcoin fallen? In fact, that was a point raised by Treasury Secretary Janet Yellen during a New York Times DealBook conference Monday. “To the extent that it is used, I am afraid it is often for illicit financing. It’s an extremely inefficient way to transact, and the amount of energy that goes into processing those transactions is staggering, ”said the former Fed chair. Yellen’s comments have been cited as a reason for recent losses from bitcoin. However, Yellen’s assessment of bitcoin as an inefficient medium of exchange is an important point that has already been raised in the past by bitcoin bulls. Using a volatile asset in exchange for goods and services makes little sense if the asset can drop 10% in one day, or rise 80% over the course of two months as Bitcoin has done in 2021, critics argue. To put a finer point, in the last 12 months bitcoin has registered 8 corrections, defined as a decrease from a recent peak of at least 10% but not more than 20%, and two bear markets, which are defined as declines of 20 % or more, according to Dow Jones Market Data. In comparison, the S&P 500 SPX Index, + 0.13% and the Dow Jones Industrial Average DJIA, + 0.05% have had a correction that then fell further in a bear market over the past year and GC00 gold, -0.20%, considered one of the rivals of bitcoin as a store of value have had two corrections (including the current one) but have avoided falling into a bear market over the past year. Some have also attributed the recent reduction in bitcoin to comments from newly discovered crypto enthusiast Elon Musk, CEO of electric car maker Tesla Inc. TSLA, -2.19%, who tweeted on Saturday that the price of bitcoin and crypto number 2 most popular, Ether ETHUSD, -14.71%, which runs on the ethereum blockchain, were too high. Meanwhile, Tesla shares have fallen into bear market territory, dropping more than 20% from a record close on January 26. Analysts have linked the weakness to the bitcoin crash, with Tesla earlier this month announcing that it had bought $ 1.5 billion of the cryptocurrency. Take a look: the drop in Tesla shares is probably related to the bitcoin bet. Other theories about the bitcoin recession include the idea that the drop is primarily due to profit-taking, with some holders making gains near their weekend peak. that some owners have made a profit, selling bitcoins during their peak weekend. Should i invest in bitcoins? Many critics warn that bitcoin and other cryptocurrencies are purely speculative assets that could be regulated and cease to exist, reducing their price to zero. It’s just unclear what the future holds for cryptocurrencies or if bitcoin will specifically emerge as the dominant virtual asset to rule them all. Although Yellen’s comments were attributed to lowering the price of bitcoin and its rivals, the Treasury secretary’s comments could ultimately be seen as constructive for digital assets in general. He also said, during his interview with the Times, that digital payments, which the Fed and other central banks around the world have explored, could lead to “faster, safer and cheaper payments,” which he described as important goals. That is not a hit to bitcoin, but it is not a full endorsement of cryptocurrency or other cryptocurrencies, as fiat-backed digital assets or central bank digital currencies are seen in a different class than crypto-backed assets. Craig Erlam, a senior market analyst at Oanda, in a note on Tuesday characterized the bitcoin pullback as a minor setback and said he wouldn’t be surprised to see it recover $ 50,000 at some point, but notes that it had been overbought and was vulnerable to a recession. Read: Bitcoin falls further below the key $ 50,000 level after Yellen calls it ‘extremely inefficient’ “The Bitcoin fever has not suddenly disappeared because Musk has questioned the price, but his Twitter feed has certainly turned a major catalyst for the market. ” Erlam wrote. “That probably won’t stop it from rising above $ 50,000 again in the very near future and probably hitting new highs soon after.” He speculated that bitcoin could hit $ 42,000 or $ 40,000 before it stabilizes. In any event, it’s worth remembering that bitcoin enjoyed a parabolic surge in December 2017, approaching $ 20,000 before crashing early the following year to a low of $ 3,000. That decline likely crushed new investors who bought the asset out of fear of losing it, or FOMO, but long-term owners or “HODLs,” holding onto their bitcoin through thick and thin, still enjoyed huge profits. . Yves Lamoureux, president of macroeconomic research firm Lamoureux & Co., told MarketWatch that average investors need to be particularly cautious around bitcoin and crypto. “Bitcoin offers the same predictable pattern,” he said. “Nobody wants it until we go parabolic … then most [people] be decimated, ”Lamoureux said. In the end, bitcoin buyers need to be careful. Why has Bitcoin risen sharply in the last year? The recent surge of bitcoin to a market value above $ 1 trillion on Friday has been more broadly related to institutions getting more involved in the asset. These include PayPal Holdings Inc. PYPL, which in November opened its cryptocurrency platform to all US customers.After conducting a narrower launch, it has helped drive bitcoin prices considerably higher in recent weeks. and months. Most recently, Musk’s Tesla announced that it had acquired $ 1.5 billion in bitcoin in January and that it could accept the world’s number one digital asset for payment in the future, which would help provide a boost to crypto assets in general. Checkout: Is Bitcoin Heading To $ 100,000 In 2021 Or Is Its Price ‘Unsustainable’?