21:38Bitcoin briefly crashed again, wiping out 2021 gains. Here's why.
Cryptocurrencies gyrated sharply Tuesday, extending a recent run of wild swings.
For the first time since January, bitcoin — the world’s most popular digital coin — briefly dropped below $30,000, a key level that technical analysts monitor. It erased its gains for 2021 before recovering to trade at $32,453.90, according to CoinGecko, a crypto market data site.
Bitcoin at one point shed more than 10% to trade as low as $29,154.73, losing more than half its value since hitting a record high in April. That's after a tremendous performance in 2020, with the digital currency surging more than 300%.
Other cryptos joined the sell-off before paring losses, with ethereum, the second-biggest digital currency by market value, slumping 5%. The selling spilled over to smaller coins like Dogecoin, a meme-inspired crypto that at one point tumbled more than 25% to erase all of its gains since April.
Here’s what drove the latest sell-off:
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A gold and turquoise circle with a Bitcoin symbol in the middle.
Since then, cryptos have gyrated as coins such as ethereum typically to move in tandem with bitcoin.
In early June, bitcoin fell further amid concerns of its use in the Colonial Pipeline ransomware attack.
Bitcoin, for instance, briefly touched $40,000 last week and fell again Monday after China's central bank deepened a crackdown on cryptocurrencies. China's central bank said it ordered some banks and payment firms, including China Construction Bank and Alipay, to crack down further on cryptocurrency trading.
Bitcoin shed more than 10% on Monday, its largest one-day drop in over a month.
How much have Bitcoin, Ethereum and Dogecoin lost in value?
Ethereum has shed nearly 57% from its all time high of $4,356.99 in May while Dogecoin has shed more than 70% since it touched a record of about 73 cents last month, according to CoinGecko.
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Over the weekend, bitcoin formed a death cross, a chart pattern that signals the potential for a major sell-off. Bitcoin’s average price over the past 50 days fell below its 200-day moving average, which means there could be more pressure on the digital coin.
"Long-term bitcoin bulls are getting nervous as a break of $30,000 could see a tremendous amount of momentum selling," Edward Moya, senior market analyst at foreign-exchange trading service OANDA, said in a recent note. "Many traders have waited for one more push lower, which could see crypto traders wait for a plunge towards the $20,000-$25,000 area."
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Some analysts think the May sell-off in bitcoin weakened institutional demand, which is likely to keep prices under pressure in the near term.
"There is little doubt that the boom and bust dynamics of the past weeks represent a setback to the institutional adoption of crypto markets and in particular of Bitcoin and Ethereum,” JPMorgan strategist Nikolaos Panigirtzoglou said in a report earlier this month.
Still, some are using the recent decline in bitcoin as a buying opportunity. On Monday, MicroStrategy, enterprise software company, said it scooped up an additional $489 million worth of bitcoin, bringing its total holdings to 105,085 bitcoins.
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In 2013, bitcoin began trading around $13 and spiked to more than $1,000 by December. In late 2017, the digital token surged to nearly $20,000, before crashing to almost $3,000 the following year. What followed was a dizzying rise to above $64,000 in April 2021.
Dogecoin has seen similar booms and swoons. It has ridden a similar Reddit-driven wave as stocks like GameStop and AMC in recent months, accelerated by a series of tweets by Musk, who was pumping the cryptocurrency.
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Even with the latest declines, the sharp rise in the value of bitcoin earlier this year has some analysts worried about a potential bubble in the cryptocurrency market, with bitcoin's price – at one point – more than doubling since the start of 2021.
About 81% of fund managers polled in a recent Bank of America survey in June said bitcoin was still a bubble. That’s up from about 75% of managers who said so in May.
“While there's no guarantee that Bitcoin will recover this time, those who believe in its long-term future may well see this decline as an opportunity to invest more,” James Royal, analyst at Bankrate.com, said in a note.
"Cryptocurrency traders, especially individuals, need to know the risks of what they own," Royal added. "In some cases, the risks could be a complete loss of their investment.”
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