Bitcoin gives up 2021 gains as price briefly drops back below $30,000

Published On: June 24, 2021Categories: Alternative Investments2.7 min read

The bitcoin price briefly gave up all of its gains from an extraordinary rally over the early part of the year as it dipped below $30,000 before immediately regaining ground to $34,000. The pattern looked like a classic ‘buy the dip bounce’ but with the exaggerated volatility the cryptocurrency has become notorious for.

Since a loss of over 10% at one point yesterday took bitcoin to a low of $29,116.11, there has since been a 17% gain. From a mid-April peak of almost $65,000, bitcoin has seen its dollar value more than half.

bitcoin chart

Bitcoin entered a period of resurgence from the second half of last year with the world gripped by the Covid-19 pandemic. People working from home and spending more time online sparked a general boom for the digital economy, raising hopes for the mainstreaming of cryptocurrencies. That combined with fears we could be entering a period of sustained inflation as a result of massive government stimulus to send interest in bitcoin through the roof again.

The number of small retail investors trading online also mushroomed over the course of the pandemic. The ‘GameStop’ craze has also had an influence. Organised massed ranks of small traders have been coordinating themselves via online forums like the Reddit group #wallstreetbets to drive the prices of financial instruments to double-digit swings up and down.

Many of these new traders have also been drawn to both the volatility of bitcoin and other cryptocurrencies to riskily chase the large gains on offer from timing the market correctly. Others have bought the cryptocurrency as a long term investment, attracted by its history of periods of gains in the triple and quadruple digits and hoping for more of the same if it breaks through into mainstream finance.

But those hopes have taken a hit recently with China cracking down on cryptocurrencies. The country’s three main financial regulators, covering payments services, banks, financial institutions and insurers all recently outlawed any companies under their jurisdiction handling cryptocurrencies.

That means bitcoin has essentially been locked out of mainstream finance in the world’s second-largest economy. China is also now targeting bitcoin miners, cutting off their supply of electricity. Between 65% and 75% of all bitcoin mining is believed to take place in China, with many of the vast collections of computer rigs running on powerful, energy-hungry processors illegally siphoning off the huge amounts of electricity they need to run.

Elon Musk, boss of electric car giant Tesla, initially threw his support behind bitcoin and convinced his company to invest $1.5 billion in the cryptocurrency, saying it would also accept it as payment for its vehicles. He then backtracked, calling the amount of energy needed to run the bitcoin network “insane” and saying Tesla wouldn’t accept payment in bitcoin until it could be shown a majority of mining was powered by renewable energy.

The pushback from China, continued concerns that the anonymity cryptocurrency transactions afford is enabling organised crime and an easing of pandemic restrictions seeing people spend less time online have now dragged bitcoin’s price back down towards where it started the year.

Bitcoin investors will hope the bounceback from yesterday’s drop below $30,000 holds with many analysts seeing that as a key level. Matt Maley, chief market strategist for institutional trading firm Miller Tabak + Co told Bloomberg:

“Any meaningful break below $30,000 is going to make a lot of momentum players throw in the towel. Therefore, even if bitcoin is going to change the world over the long term, it does not mean it cannot fall back into the teens over the short term.”

About the Author: Jonathan Adams

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