Cryptocurrencies: Why is Bitcoin tumbling and what is the outlook for prices?

*As digital assets make further inroads with both retail and institutional investors, regulators across the world are taking a closer interest in recent times

Alexander Davis | ConsumerConnect

Following the crash of the virtual currency last weekend, the Bitcoin rollercoaster is back, according to report.

The cryptocurrency fell by as much as 15 percent Sunday, April 18, 2021, with rival coins like Ether and XRP also plunging.

The retreat came after Bitcoin hit a record high of more than $64,000 Wednesday as the stock-market debut of the United States’ largest exchange for the tokens, Coinbase Global Incorporated stoked enthusiasm for all things crypto.

While prices steadied Monday, April 19 with Bitcoin holding just below $57,000, that’s still down about 12% from last week’s intraday peak, agency report stated.

So, what has sparked the slide? As is often the case, especially with assets as opaque as cryptocurrencies where it’s often unclear who is selling or buying, there isn’t one answer. Analysts point to a grab bag of reasons.

Regulation fears

As digital assets make further inroads with both retail and institutional investors, regulators across the world are taking a closer interest.

ConsumerConnect had reported the Turkish Central Bank Friday, April 16 said it would ban their use as a form of payment from April 30 and would prohibit companies that handle payments and electronic fund transfers from processing transactions involving crypto platforms.

Another report indicates there was also online speculation over the weekend that the US Treasury is poised to crack down on money laundering carried out through digital assets, but the Treasury declined to comment, reports Bloomberg.

Other sources of regulatory pressure include central banks’ plans to create digital currencies such as China’s for the yuan, and the ban of cryptocurrency mining in Inner Mongolia, long an industry favorite because of its cheap power.

Eva Ados, Chief Investment Strategist at asset manager ERShares, said on Bloomberg TV, warning investors to be “very careful.”

Ados stated: “We will see more regulation coming,”

“We think there is going to be even more volatility going forward.”

In terms of overexcitement, any big rally offers potential for the market to get ahead of itself, report said.

That’s the view of Galaxy Digital founder and long-time crypto bull Michael Novogratz, who wrote on Twitter he sees the retreat as a healthy correction.

With hindsight it was inevitable. Markets got too excited around $Coin direct listing. Basis blowing out, coins like $BSV, $XRP and $DOGE pumping.

All were signs that the market got too one way. We will be fine in the medium term as institutions coming to the space.

Other things could be adding to the mix. Industry news site CoinDesk reported Saturday that power outages in parts of China had knocked out a significant amount of Bitcoin mining capacity, which reduced the overall processing power of the cryptocurrency’s network.

It is believed there’s also the timing.

Kyle Rodda, a Melbourne-based market analyst at IG said: “Bitcoin goes crazy on weekends because it’s one of the few markets open to trade in.

“And it’s lost some buying support.”

But how significant are the drops? Given the frequent warnings from mainstream financial figures of a speculative mania in cryptocurrencies, report says any substantial drop reawakens memories of the 2017 crash.

Back then, Bitcoin fell from more than $19,000 to under $4,000 by the end of 2018.

While the current retreat is notable, it’s not on that scale. Bitcoin is still 93% higher than it was in January.

Volatility is routine for the asset class: the 15% intraday drop on Sunday was only the biggest since February.

Ether, which fell as much as 18% before closing 9.4% lower on Sunday, is up more than 200% this year.

What’s the price outlook now? The trouble with any sort of price predictions for cryptocurrencies is that there aren’t a lot of fundamental metrics to form the basis of forecasts, according to report.

Much comes down to best guesses on whether institutional investors will buy in and whether Bitcoin whales will sell.

Less than 2% of accounts control 95% of the available supply, according to researcher Flipside Crypto.

That means one large holder can have an outsized impact on the still illiquid market.

A basic difference to the prolonged crash in 2017 is said to be that a wide range of institutional investors now have some stake in the market.

Brevan Howard Asset Management last week became the latest money manager said to be investing in digital assets.

In a further sign of growing interest among the wealthy, both Morgan Stanley and Goldman Sachs Group Inc. are now planning to offer clients access to crypto investments.

In January 2021, JPMorgan Chase & Co. analysts suggested Bitcoin has the potential to reach $146,000 in the long term, a target they recently pared back to around $130,000.

Pepperstone’s Chris Weston wrote in a note to clients that “passions run deep on social as to the likely near-term path for crypto…. But dips are clearly supported.”

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