Written by Norman Isaac Mwambazi

Is cryptocurrency in a bubble? Prices continue to plummet as Bitcoin falls below $40,000

Some cryptocurrency retail investors with weak hearts have started shedding tears after seeing their portfolios ll blinking red. In the …

Some cryptocurrency retail investors with weak hearts have started shedding tears after seeing their portfolios ll blinking red. In the last 24 hours, cryptocurrencies like Bitcoin, Ethereum, and Dogecoin, among others have fallen in prices dropping from record highs to scry lows.  

This current cryptocurrency dip began last week when Tesla Chief Executive officer (CEO) Elon Musk turned against Bitcoin. By this morning of Wednesday, May 19, 2021, Bitcoin, the world’s biggest digital currency had dropped by 10.4% to below $40,000, dropping as low as $38,787. However, it has managed to rise few percentage points to $42,500.

This price decline has come at a time when the People’s Bank of China has renewed its crackdown on cryptocurrencies. According to Yahoo Finance, the central bank issued a statement on its WeChat account advising that financial institutions in China should not accept or deal with cryptocurrencies.

Neil Wilson, the Chief Market Analyst at Markets.com said that other countries might follow in China’s footsteps of restricting central banks from dealing with the highly volatile cryptocurrencies.

“China has for some time been putting pressure on the crypto space, but this marks an intensification. Other countries might follow now as central banks make strides towards their own digital currencies,” Wilson said.

Bitcoin’s plummet sent shockwaves throughout the entire cryptocurrency market. Ethereum, the world’s second-biggest cryptocurrency, dropped 14.5% to $2.628,01. Dogecoin, which has been on the lips of Elon Musk in the previous weeks more than anything else, was down 15% to $0.43.

Things are looking gloomy right now for cryptocurrency investors because, in the last 24 hours, the value of the entire crypto market has fallen by 13%, according to CoinMarketCap.com.

Wednesday’s slump extended a slide that began last week after Elon Musk announced his company would no longer accept Bitcoin as payment for its electrical cars. Musk, who has for long been an ardent advocate of cryptocurrency, cited environmental concerns related to the huge amount of energy consumed during Bitcoin mining.

As a result, Bitcoin has fallen about 30% since Musk’s announcement last week and is now 37% below record highs reached earlier in the year. However, it remains up 35% since the start of the year, following a spectacular rally that began last October.

The embrace of mainstream institutions initially fuelled the run-up. Banks, payment companies like PayPal and Jark Dorsey’s Square, and tech companies like Tesla and MicroStrategy all announced they were either working with or investing in cryptocurrencies like Bitcoin with both buying $1.5 billion and $2 billion worth of Bitcoin respectively. This week, MicroStrategy invested another $10 million into buying the price dip. Shares in the company were down 5% in the pre-market.

More recently, retail investors piling into the market to take advantage of price momentum have fuelled crypto gains. With price growth stalling in recent weeks, some have begun to exit positions.

“The crypto bubble has started to unravel and data from different exchanges suggest that retail investors are capitulating,” said Giacomo Pierantoni, a research analyst at Vanda, which produces proprietary data on retail investment flows.

Recent price declines have sparked angry debate and recriminations among small time investors. Still, many institutional investors and analysts who follow the space remain optimistic about its long-term prospects.

“Bitcoin’s pattern over the last 10 years has been meteoric rises followed by pull-backs. The trends have been higher highs and higher lows: one year ago today, Bitcoin closed at $9,927 while it now sits at about $42,500,” said Joe DiPasquale, chief executive of BitBull Capital.

“While it’s certainly fallen from its $63,000 high, that is still a 300% rise. The fall in price is a natural consolidation period that we see as necessary for the support lines to form for future appreciation. We remain bullish on Bitcoin and confident that we will see Bitcoin at $100,000 in the future.” he added.