Bitcoin regained some lost ground to trade near $40 000 (R560 395) yesterday, a day after a brutal sell-off 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 percent to $42 000, after plunging 14 percent on Wednesday to it slowest level since late January.
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, the chief executive at crypto trading bot Cryptohopper. “The next few months will show if the bull market will continue or if it’s the start of the end of its run.”
Wednesday’s volatility fuelled 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 yesterday 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.
“It’s too early to say if the rebound we’ve seen off the lows in crypto has legs,” said Chris Weston, the head of research at brokerage Pepper-stone in Melbourne.