Bitcoin, the world’s most popular cryptocurrency, is used to volatile price movements ever since people started to buy bitcoin for less than a penny in 2010. On Wednesday, Bitcoin saw its deepest selloff since the crypto mania kicked off last year amid pandemic as prices plunged more than 30 per cent in less than 24 hours. Bitcoin was already under pressure from tweets by Elon Musk when China banned financial institutions from providing services related to cryptocurrency transactions.
When Bitcoin was first introduced in 2009, it was worth $0. A year later, when early adopters began trading in the digital currency, it was valued at the fraction of a cent. In 2011, the cryptocurrency hit the level of $1 for the first time. Bitcoin crossed the $1,000 mark in November 2013 as it started catching attention across the world. In the second major price surge in its history, Bitcoin went within touching distance of the $20,000 mark in 2017 but crashed to $3,300 in the next 12 months. In December 2020, Bitcoin crossed the $20K.
In the last few months, the frenzy over Bitcoin has taken some sheen off gold as both the assets enjoy an inverse relationship with the US dollar and are often bought to hedge against the greenback. The selloff in crypto assets at a time when inflation fears are growing, however, hurts the idea of the asset class acting as an inflation hedge.
Earlier in February this year, the rally in Bitcoin was sparked by a $1.5 billion investment by Tesla. Last week, Bitcoin turned volatile when Musk retracted plans to accept Bitcoin for Tesla’s cars. Selling resumed on the weekend when Musk seemed to suggest Tesla might want to sell its corporate holdings, but reversed after he tweeted that the carmaker had no plans to do so. On Wednesday, Musk indicated that Tesla may hold its Bitcoin position.
Avinash Shekhar of crypto exchange ZebPay said a nearly 40 per cent dip in Bitcoin price from its all-time high looks dramatic but is normal in many volatile markets, including crypto, especially after such a large rally. “Long-term value investors might call these lower prices a buying opportunity. Technical analysts would call this a test of the support level around $40,000,” he said. Zerodha CEO Nithin Kamath, however, said one should reduce percentage exposure if the risk is high, and not average down.
Cathie Wood of ARK Investment Management sees the ongoing meltdown in cryptocurrencies such as Bitcoin as an opportunity. She said her investment firm was sticking to its long-term target of $500,000 on Bitcoin. However, some cryptowatchers predict more losses ahead.
