Cryptocurrencies that seemed to “defy gravity” until a few weeks ago went into a “sudden landing” this week, which could affect their credibility and potential as a “mainstream” investment.
The two most popular digital currencies, Bitcoin and Ether, fell as much as 30% and 45% respectively, but regained ground after statements of support from two of their biggest supporters, Tesla’s Elon Musk and Cathie Wood.
Although many analysts said the “boom” in interest in cryptocurrencies this year was unsustainable, the “catalyst” in this case was China’s move on Tuesday to ban financial institutions and payment services from providing cryptocurrency services. According to Reuters, it also warned investors against “betting” crypto trading.
At some point on Wednesday, about a trillion dollars were written off from the market capitalisation for the cryptocurrency sector as a whole.
Bitcoin, the largest and most well-known cryptocurrency in the world, was already under pressure due to a series of tweets by Tesla’s Elon Musk.
Cryptocurrency prices plummeted last week when Tesla stopped accepting bitcoins for payments, citing the high environmental cost of bitcoin mining, which requires a lot of electricity to power computers that generate bitcoins. However, another tweet by Musk on Wednesday, suggesting that it is worth keeping bitcoins, helped mark a recovery.
On Thursday, Bitcoin recovered, approaching $40.000. Bitcoin has fallen about 40% from a record $64.895 in April. It fell to $30.000 on Wednesday and then topped $37.000 again. However, fluctuations are not uncommon, and many analysts point out that, given the large rise, the fall is not surprising.