Can Bitcoin, Ethereum and other cryptos recover?
Nearly US$1 trillion was wiped off the market capitalisation of the cryptocurrency market this week. Here's what analysts have to say about it.
- Bitcoin (USD) price hit a four-month low of US$30,066 on Wednesday (20 May 2021)
- Meanwhile, Ethereum (USD) and other cryptos tanked over 50% in a market-wide rout
- A tweet from Tesla CEO Elon Musk managed to slow down the bleeding
- Analysts are split on crypto’s recovery outlook, with one saying this is ‘just yet another hurdle for Bitcoin to overcome’
- Buy and sell Bitcoin, Ethereum and more cryptocurrencies with an IG account
Cryptocurrency market plunges nearly US$1 trillion
Bitcoin, the biggest and best-known cryptocurrency, slid to a low of US$30,066 on Wednesday (20 May 2021). The coin was trading 7.2% lower at US$38,286 as of 10:35SGT on Thursday, and has fallen about 41% from its record high of US$64,895 reached on 14 April 2021.
Meanwhile, Ethereum - the second largest digital currency by market cap - sunk nearly 60% from its highest point this year to a one-month low of US$2,271.
Other cryptos - from Litecoin to the parody invention Dogecoin - also suffered massive losses of over 50%.
At one point on Wednesday, almost US$1 trillion was wiped off the market capitalisation of the entire cryptocurrency sector, Reuters reported. Plumb Balanced Fund portfolio manager Tom Plumb noted: ‘It’s not just a small segment of the world that is affected by cryptocurrencies; it’s now mainstream.’
Also weighing on sentiment was China’s move on Tuesday to ban financial and payment institutions from providing cryptocurrency services, and also the country’s warning to investors against speculative crypto trading.
Some market watchers predicted more losses ahead, noting that Bitcoin’s fall below US$40,000 was a breach of a key technical barrier, Reuters reported.
During the crypto price slide on Wednesday, Tesla Inc CEO Elon Musk tweeted an emoji, suggesting the Bitcoin position is worth holding on to. Musk’s tweet ‘definitely’ helped the digital token’s recovery, said Toroso Investments chief investment officer Mike Venuto.
Last week, cryptocurrency price declines erupted after Musk’s comments on Twitter that the electric-car maker has suspended vehicle purchases using BTC.
To hold on or to let go?
‘The crypto markets are currently processing a cascade of news that fuel the bear case for price development,’ said Ulrik Lykke, executive director at crypto hedge fund ARK36.
Over US$250 billion was erased from Bitcoin’s market cap in the past week alone. Although that figure seems ‘astronomical,’ Lykke said that this is not an uncommon phenomenon in the crypto market.
And in terms of Bitcoin’s outlook, Lykke said that though ‘things may be looking grim right now’, this is ‘just yet another hurdle for Bitcoin to overcome and a small one compared to what it has braved in the past’.
On the other hand, UBS Global Wealth Management’s chief investment officer Mark Haefele noted that the ‘ high volatility of cryptos...makes them an unreliable store of value’.
‘Weekly moves of more than 10% in Bitcoin are common. In the week to 14 May, bitcoin fell 24%, which would be a high level of volatility for a small-cap stock, let alone a currency,’ Haefele wrote.
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