(Bloomberg) —
Bitcoin and Ether remain under pressure after a bruising U.S. session that left much of the cryptocurrency community in shock.
The two leading digital tokens slipped back toward this week’s lows during Asian trading before rebounding. Bitcoin dropped as much as 8.7% but subsequently climbed to trade around the $40,000 mark as of 2:20 p.m in Hong Kong. Ether slumped as much as 15% but later pared that decline.
Cryptocurrencies are reeling after Tesla Inc. founder Elon Musk complained about the fossil-fuel usage implied by Bitcoin’s energy needs while reversing his pledge to allow purchases of cars with the largest token. The People’s Bank of China added to the negative sentiment by reiterating that digital tokens can’t be used for payments.
Still, those catalysts don’t entirely explain the rout that took place Wednesday, which saw a plunge of 31% followed by a rally of about the same percentage. Leveraged investors and the spike in volatility may have also played their parts in the tumult.
Many traders in crypto use borrowed money to boost their returns, which leaves them vulnerable to having their positions automatically sold if prices drop. In the past 24 hours, more than 700,000 traders have had their account liquidated, equal to $8.1 billion worth of crypto, according to Bybt.com data.
Bad news, bearish technicals and “some people forced to sell was a recipe for disaster,” said Todd Morakis, co-founder of digital-finance product and service provider JST Capital. “We’ll see plenty of movement over next week but hoping it will be in a range albeit wider than normal. This market presents opportunities for people now but I think you will see people wait and let it settle.”
Other commentators are becoming increasingly negative.
“A period of relative calm will flush out more dip buyers, but Bitcoin looks like a dead-cat bounce, especially when one looks at the underperformance of the other alt-coins late-session rally,” said Jeffrey Halley, senior market analyst at Oanda Asia Pacific Pte. “If Bitcoin closes under $40,000 this evening, we will see another leg lower and a probable retest of $30,000 again.”
Cryptocurrencies have still provided bumper gains for investors who’ve held them for more than a few months. Bitcoin is up about 37% this year, while Ether has more than tripled. Goldman Sachs Group Inc., Bank of New York Mellon Corp. and DBS Group Holdings Ltd. have all started or expanded offerings in recent months, a sign of a growing embrace of digital tokens.
The caution from China and potential regulation by the U.S. are leading to uncertainty that “could cap digital assets in the near term, even resulting in a retest or a modest undercut of the lows in Bitcoin and Ether,” said Julian Emanuel a strategist at BTIG LLC.
Still, “the boom-and-bust cycle of digital assets, with a mere 2% of people using crypto at present (the same figure as used the Internet in 1996) likely has more boom to come in the years ahead,“ he said.
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