The Tesla-driven bullish frenzy which shot Bitcoin price to a record high of $58,332 seems to have come to a halt. The world’s flagship crypto saw its valuation dip by as much as 17% on Tuesday to trade as low as $45,041, according to Coin Metrics.
Sustaining that enormous rally was always going to be difficult as Bitcoin wiped off 67% of its overall $19,952 gain within the space of just two days. The selling spree among investors shrank the global crypto market’s value by about 9% worth over $150 million.
But Bitcoin is not the only cryptocurrency to have suffered a price plunge. The world’s second most traded crypto, Ethereum also dropped 19% to sell at $1,520 on Tuesday.
Why Bitcoin Price Sank
While this is not the first time Bitcoin’s bullish trend has suddenly hit the brakes, the reversal in Bitcoin’s most recent uptrend can be attributed to a number of factors including Elon Musk’s weekend comments and market correction.
Musk had, in a tweet on Saturday, jokingly remarked that Bitcoin and Ethereum were priced too high. But such is the Tesla CEO’s influence in the world of crypto now that whatever he says moves the market. His comments shot down investor confidence as traders feared a sharp downturn in prices.
Perhaps this spurred several traders to quickly cash out on profits before prices went down, which the sell-offs led to anyway.
One wonders why Musk made such a statement, as the succeeding sharp fall in bitcoin’s price wiped $15.2 billion off his net worth and tanked Tesla’s market value by $200 billion.
US Treasury Secretary and Bitcoin critic Janet Yellen also issued a warning on Monday, describing the crypto as an “extremely inefficient way of conducting transactions.”
Microsoft co-founder Bill Gates somewhat echoed Yellen’s concerns, stating: “I’m not bullish on Bitcoin, and my general thought would be that if you have less money than Elon you should probably watch out.” Well, over 7 billion people fall into that bracket, and Mr Gates’ comments may have triggered a sell-off among many investors. When money speaks, the world just has to react, no?
Besides, crypto experts opined that market correction had been forthcoming after Bitcoin price went through the roof. They maintained that the price had reached a point of resistance where supply dwarfed demand and prices were pushed lower because there was more pressure to sell than to buy.
Trends to Look Out For
Much has rightly been said about Bitcoin’s volatility, but there is some predictability to price movements.
Jack Dorsey‘s Square purchased $50 million worth of Bitcoin in October and prompted an 8% rise in Bitcoin price from $10,500 to $11,300 within three days. Similarly, Elon Musk’s Tesla investment drove the crypto’s price to an all-time high.
Prices tend to go up on the back of huge investments by global corporations as well as endorsements from renowned business magnates and finance gurus.
A sharp fall in prices usually gives way for a bullish run, which may, however, last for a short time.
That said, Jack Dorsey’s Square has now purchased $170 million in Bitcoin over 4 months after its first investment in the digital assets class. Square disclosed the investment in its quarterly earnings report on Tuesday. The digital payments company purchased about 3,318 BTC at an average price of $51,236/Btc.
In what underlines the company’s remarkable confidence in Bitcoin, Square’s latest buy is more than triple its $50 million purchase in October last year.
It is interesting to note that Square’s investment has been announced on the same day Bitcoin price sank to as low as $45,042, two days after hitting a record high of $58,322. However, the crypto has steadily bounced back and is currently trading around $50,250.
Despite Bitcoin price volatility, Square’s latest Bitcoin investment can perhaps be justified on certain grounds. For context, the company has gained up to $200 million on the 4,709 BTC (priced at $10,618) it acquired in October.
Bitcoin price should expectedly rise on the back of Square’s recent investment due to renewed investor confidence, just as it did with Tesla’s. Although you shouldn’t expect the same staggering proportion.
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