After surging to a fresh all-time high of almost $42,000 on Friday, Bitcoin prices tumbled more than 25% to $31,000 Monday morning, generating debate over whether the crypto has entered a technical bear market or is just pulling back, even as companies continue to seek approval for a Bitcoin ETF.
To be sure, the notorious cryptocurrency has still climbed a tremendous amount from last year, but the steep drop underscores the sharp rise, and how dangerous the volatility is for traders and investors, who collectively lost roughly $200 billion.
“It’s scary when the price of bitcoin just goes straight up,” said James Putra, vice president of product strategy for TradeStation Crypto. “This pullback was needed.”
The market capitalization or value of the cryptocurrency market was $880 billion on Monday, down from $1.08 trillion a day earlier, according to Coinmarketcap.
Is Bitcoin Coming Out of ‘The Mother of All Bubbles’?
Just last week a strategist at Bank of America said Bitcoin’s explosive rise may be represent the “mother of all bubbles,” noting that the recent sharp run-up in the crypto is more significant than other historic manias of the past few decades, such as gold in the 1970s, the dot-com and tech bubble the late 1990s, and the housing boom in the mid-2000s.
Despite the steep fall however, analysts feel that it is a “healthy correction” that “was due a long time ago,” according to Naeem Aslam, chief market analyst at AvaTrade. This could provide an opportunity for Bitcoin permanent-bulls to jump on board, and make a more significant case for a Bitcoin ETF, which would allow for smaller trading sizes.
“The correction we saw was expected as we believe the BTC price surge recently from under $20,000 to $40,000 in the past four weeks will induce sell pressure,” said Simons Chen, executive director of investment and trading at cryptocurrency financial services firm Babel Finance.
The $40,000 level may have represented a ceiling to be used for profit-taking, Chen said.
The famed cryptocurrency first crested the $20,000 level in mid-December and rocketed past $30,000 earlier this month, thanks to coronavirus-induced panic and political and economic uncertainty throughout the globe.
Even with the drops over the weekend and Monday, Bitcoin is over 10% higher already in 2021, having spiked about 300% in the past year.
Jehan Chu, founder of cryptocurrency-focused venture capital and trading firm Kenetic Capital, said the steep drop in Bitcoin could present a buying opportunity for new investors.
“This short term correction is both natural and needed, and is a great entry point for long-term investors as we quickly reach $50k this quarter and $100k by year’s end,” Chu told CNBC.
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