Speculative Bitcoin Bubble Run Pauses As Prices Fall Almost 22 Percent
After hitting $1 trillion in market value last week for the first time, bitcoin resumed its downward slide on Tuesday — it’s now worth less than $900 billion.
Bitcoin reached a new all-time high of more than $58,000 over the weekend but was trading at $45,393 at around 7 a.m. EST on Tuesday, down almost 22 percent.
The decline was fueled in part by Tesla CEO Elon Musk’s tweeted comments over the weekend that the prices of bitcoin and ether (the top two cryptocurrencies by market cap) “do seem high,” Bloomberg reported.
Two weeks after Tesla announced it had added $1.5 billion in bitcoin to its balance sheet, Musk is no longer the world’s richest person. Tesla shares fell 8.6 percent on Monday, erasing $15.2 billion from his net worth.
Less than four weeks ago, you could have bought bitcoin for under $30,000, according to Coindesk.
Speaking at a New York Times event on Monday, U.S. Treasury Secretary Janet Yellen described bitcoin as a “highly speculative asset” that is extremely inefficient for transactions. The amount of energy consumed in processing bitcoin transactions is “staggering,” Yellen said.
Price swings of more than 10 percent aren’t unusual in crypto markets, Ryan Browne wrote for CNBC. Bitcoin almost reached $20,000 in 2017 before shedding 80 percent of its value the following year.
Glen Goodman, a U.K.-based trader, described the bitcoin scenario as “a virtual forest fire. The wood was bone-dry and waiting for a spark. Elon Musk was that spark,” Goodman told CNBC.
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“Crypto futures traders were borrowing so much money to buy bitcoin contracts, they caused borrowing rates to skyrocket,” Goodman added. “By Saturday 20th Feb, they were paying 144% per annum. Clearly that situation couldn’t continue. In those conditions, prices have to fall to shake out the over-optimistic borrowers and return borrowing rates to normal levels.”
Monday’s market selloff hit many of the world’s ultra-rich, Bloomberg reported. Asia’s richest person, Zhong Shanshan, was the No. 2 decliner on the Bloomberg index, dropping by $5.1 billion as his bottled-water company fell 4.5 percent. Tencent Holdings Ltd.’s Pony Ma, Colin Huang of Pinduoduo Inc., and Reliance Industries Ltd.’s Mukesh Ambani all lost more than $2.5 billion each.