A customer uses an ATM with Bitcoin in a kiosk in Barcelona, Spain on Tuesday, February 23, 2021.
Angel Garcia | Bloomberg | Getty Images
Bitcoin hovered between gains and losses on Thursday as the world’s largest cryptocurrency struggled to recover from a major sell-off in its last session.
The digital currency initially climbed as high as $ 40,700 on Thursday morning before slipping to $ 38,965, according to Coin Metrics. It was last up 2.6% at a price of $ 39,980.
Some of Bitcoin’s younger alternatives also attempted a comeback Thursday: Ether rose 2.2% to $ 2,676 and Litecoin rose 3% to $ 209.
It comes after a brutal slump for cryptocurrency markets. On Wednesday, Bitcoin fell 30% to nearly $ 30,000 at one point, before some of those losses were reduced later in the session. The entire crypto market lost hundreds of billions of dollars in value in a single day.
The decline was likely due to mixed signals from Tesla CEO Elon Musk, who believed in Bitcoin earlier this year, and a regulatory restriction on the Chinese market.
On May 12, Musk announced that his electric car company had suspended purchases of vehicles using Bitcoin due to environmental concerns about the cryptocurrency. According to researchers from Cambridge University, Bitcoin uses more energy than entire countries like Argentina and Ukraine. This is due to the energy-intensive “mining” process in which new bitcoins are brought into circulation.
Earlier this week, Musk suggested that Tesla may have sold its Bitcoin holdings, only to later clarify that the company “did not sell Bitcoin”. On Wednesday, he tweeted the “Diamond Hands” emoji, which meant the electric vehicle maker would not lose any of its Bitcoin.
Also detrimental to Bitcoin price on Wednesday was news that China had banned financial institutions and payment companies from providing cryptocurrency-related services, and reaffirmed its tough stance on digital currencies.
“If you look at the history of bull markets, a correction of that size between 30 and 40% in Bitcoin price tends to be part of the bull market,” said Alyse Killeen, founder and managing partner of Bitcoin-focused venture capital firm Stillmark Capital, told CNBC Wednesday.
Institutional investors jump ship?
Bitcoin investors say the cryptocurrency has become a kind of “digital gold” that offers protection from rising inflation as central banks around the world print money to help ease the economic blow of the coronavirus crisis. They say this has resulted in increased buying from institutional and corporate investors.
However, in a notice to clients this week, JPMorgan analysts said institutional investors are ditching Bitcoin in favor of gold, reversing the trend that has been playing out over the past two quarters.
“I’ve talked to friends in the institutional bitcoin buying and keeping sector … and what I’ve heard from them is that people don’t sell,” Killeen said.
“What you saw was newer buyers dropping out and long-term owners piling up or over ‘hodling,“And that’s what we’ve seen in the past with these more significant declines in bull markets,” she added.
Lately there have been various signs of foam in the crypto market. Dogecoin, a meme-inspired digital currency, saw a formidable rally earlier this year, fueled by supportive comments from Musk and other celebrities like Mark Cuban and Gene Simmons.
Cryptoskeptics would argue that all digital assets are in a speculative bubble. In a closely watched survey of fund managers, Bank of America found that “Long Bitcoin” was the busiest trade. According to the company, 75% of fund managers said the cryptocurrency is in the bubble area.