Bitcoin Breaks $34,400 Sunday In Historic Run, Then Falls 17 Percent
Bitcoin prices hit an all-time high of $34,000 on Sunday before fizzling on Monday, falling as much as 17 percent in the biggest drop since the March 2020 covid-19 stock market crash — then recovering somewhat in a whiplash-like scenario.
The losses are small in the context of bitcoin’s broader rally, Bloomberg reported. After a parabolic 2020 — prices were up more than 300 percent — bitcoin saw a 50-percent increase in December alone. It started the new year with an all-time high on Sunday of $34,000.
Along with bitcoin, other cryptocurrencies saw a surge such as ether, the coin used on the Ethereum platform, which passed the $1,000 mark for the first time since February 2018.
The price of bitcoin went as low as $29,316 at around 5:40 a.m. ET Monday, then lifted back up to $32,178.70 as of this writing.
“The most likely explanation for a pullback is short-term profit-taking by traders, rather than long-term investors,” Jason Deane, an analyst at crypto advisory firm Quantum Economics, told CNBC via email. “Given the current sentiment and appetite for Bitcoin, it seems likely that any correction will be short-lived.”
The price of bitcoin quadrupling over the last year is something of a mystery, said Bryan Routledge, associate professor of finance at the Tepper School of Business, Carnegie Mellon University on Yahoo Finance Live.
“But the fact it is what it is … I think it’s a validation that the blockchain technology (it’s built on) is real and effective,” Routledge said.
Bitcoin traded at around $34,400 at 02:30 EST Sunday, Jan. 3 2020, hours after triggering headlines around the world by hitting $30,000. That added “an immediate exclamation point to the Bitcoin Network’s 12 year anniversary,” reporters wrote for Yahoo News.
It’s hard, as usual in the crypto world, to pinpoint the cause of the latest bout of volatility. However, the 300 percent increase is attributed in part to speculative fever from retail and institutional investors who believe that cryptocurrencies are emerging as a mainstream asset class and can act as a store of value, according to Bloomberg.
“Today’s selloff is a reminder this is a relatively new asset, highly volatile, and still yet to find its place in the market,” said Adrian Lowcock, head of personal investing at Willis Owen Ltd. “There are many (major) hurdles for it to overcome for it to be a useful mainstream asset.”
The supply of bitcoin is limited to 21 million. Bitcoin bulls say market constraints and rampant money printing by central banks are driving the bullish narrative, Bloomberg reported. Others say that cryptocurrencies are a bubble and “another sign that crazy risk-taking has taken over global markets.”
The weaker dollar could also be playing a role in bitcoin’s rise, said Paul Hickey of Bespoke Investment Group. “The last time the dollar saw a larger six-month decline was in the second half of 2017,” Hickey said. “That’s also the same time that bitcoin first started to go mainstream.”
People’s desire to own bitcoin may be part of a desire to have access to — and own — a piece of the blockchain technology, according to Routledge.
It took bitcoin’s price three years to bust through a three-year-old high of $19,793 on Nov. 30, 2020. By Dec. 31, 2020, the cryptocurrency had risen about $10,000.
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Buying into the growing narrative that bitcoin represents a form of “digital gold” are institutional investors such as Anthony Scaramucci’s Skybridge Capital ($182 million in December), MassMutual ($100 million in December); and Guggenheim (up to 10 percent of its $5 billion macro fund), Yahoo reported.
Earlier in 2020, Jack Dorsey’s payments app Square announced a $50 million bitcoin investment. PayPal announced it that will allow customers and the 26 million merchants on its network to buy, sell and shop using bitcoin and other virtual coins in its online wallet.