Bitcoin’s star backers and dip buyers help cryptos recover
Bitcoin regained some lost ground to trade near $40,000 on Thursday, a day after a brutal selloff on concerns over tighter regulation in China and unease over the extent of leveraged positions in the cryptocurrency world.
The biggest and most popular cryptocurrency rose nearly 14% to $42,000, after plunging 14% on Wednesday to its lowest since late January. Smaller rival ether was up 20% at $2,935 at 1313 GMT, after its 28% tumble.
Those bounces came after prominent crypto backers such as Ark Invest’s Cathie Wood and carmaker Tesla’s Elon Musk indicated their support on Wednesday.
Wood said in an interview with Bloomberg that she was still sticking to her $500,000 forecast. Musk reiterated that Tesla was holding on to its bitcoin investments.
“People consider this as a ‘buy the dip’ moment, and many consider this as ‘the last chance to buy bitcoin cheap’,” said Ruud Feltkamp, chief executive at crypto trading bot Crypto hopper. “The next few months will show if the bull market will continue or if it’s the start of the end of its run.”
A Bitcoin (BTC) logo is displayed on a crypto currency ATM machine in a shop in Weehawken, New Jersey, U.S., May 19, 2021. REUTERS/Mike Segar
Wednesday’s declines in both digital assets were one of their biggest daily percentage moves in more than a year, with investors rushing to exit trades that until recently were outperforming traditional markets such as stocks and bonds.
Wednesday’s volatility fueled record turnover. Data from CME showed volumes on bitcoin futures soared to 32,356 contracts, more than three times the average volumes for May.
While turnover on Thursday declined from the frenzied volumes seen overnight, May contracts still showed more than 6,000 contracts traded. Similar trends were observed on CME’s micro bitcoin futures where nearly 95,000 contracts were traded on Wednesday.
The catalyst was a statement by Chinese financial industry bodies banning the use of cryptocurrencies in payment and settlement, and prohibiting institutions from providing crypto-related products or exchange services between cryptocurrencies and the yuan or foreign currencies.
“A defining factor for China’s decision is also likely to be their strong push towards a central bank digital currency solution,” said Alexander Ruchti, next-generation research analyst at Julius Baer.
“The past week’s steep and rapid decline once more underpins how susceptible the segment is towards sentiment swings.”
Bitcoin had been under pressure after a series of tweets last week by Musk, a major cryptocurrency backer, chiefly his reversal on Tesla accepting bitcoin as payment.
Analysts said the upheaval was far from over.
The slide forced some investors to close out leveraged positions in cryptocurrency derivatives, which caused prices to fall further and knocked digital assets down into a lower trading range, traders said.
Bitcoin’s star backers, dip buyers help cryptos recover
“It’s too early to say if the rebound we’ve seen off the lows in crypto has legs,” said Chris Weston, head of research at brokerage Pepperstone in Melbourne.
“I question if we will get a chance to catch our breath or is there more volatility in store?”
Weston pointed to how $9.13 billion of cryptocurrency positions had been liquidated across exchanges over 24 hours, and $532 billion in total volume transacted.
CROWDED ETHER
Coming off a six-fold jump on the back of rising usage in non-fungible tokens on digital art platforms, ether’s selloff was far more damaging, with the digital currency trading 39% below its record highs.
James Quinn, managing director at Q9 Capital, a Hong Kong-based cryptocurrency private wealth manager, said the selling reflected huge crowded positions in ether.
Ether is still up more than 270% so far this year, however, outperforming bitcoin’s year-to-date gain of 37%.
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“This can also be the moment when Bitcoin starts reclaiming the market momentum from ether and other altcoins that have had room to outperform BTC in the last four months,” said Ulrik Lykke, executive director at crypto hedge fund ARK36.
While some retail traders saw missed opportunities in the slide, others saw the rout as a chance to pick up digital assets on the cheap.
Milko Markov, an independent London-based trader, said he had been buying ether.
“Those with a bit more experience in the crypto market know two cardinal rules: don’t leverage and dollar cost average,” he said.
(Additional reporting by Tom Westbrook and Vidya Ranganathan in Singapore, Alun John in Hong Kong; Editing by Kim Coghill, Toby Chopra, Catherine Evans and Andrea Ricci)
