From $42,000 to $31,000, Bitcoin plunged into a bear market in three days! The market value of digital currency quickly fell below one trillion

Source: Wall Street Journal

Author: Cao Zexi, Du Yu

It is easy to fall hard when you climb high, and it is lonely at the top. The same is true for Bitcoin.

On Monday, January 11, just three days after Bitcoin climbed to an all-time high of $42,000 last Friday, the largest digital cryptocurrency plummeted nearly $11,700 from its all-time high and fell into a technical bear market.

As of one and a half hours before the close of U.S. stocks on Monday, according to data from the CoinDesk platform, Bitcoin's 24-hour low was $30,305.30, a drop of nearly 28% from its all-time high of $41,962.36. Subsequently, the price of Bitcoin returned to above $31,000.

Earlier, as of 18:25 on Monday evening Beijing time, Bitcoin quickly fell below several barriers between $40,000 and $33,000 in 24 hours, equivalent to wiping out all the gains of the previous five days. Bitcoin continued to fall in early trading of U.S. stocks and fell below $31,000.

According to statistics from the Bitstamp platform, Bitcoin hit a daily low of $30,669 in early trading on Monday, then quickly rose by nearly $1,400 to return above $32,000, and the decline narrowed to nearly 15% within 24 hours. Bloomberg said that Bitcoin fell 26% last Sunday and Monday, the largest two-day drop since March 2020. Since last Friday, the market value of Bitcoin has wiped out nearly $185 billion.

This also caused the market value of the overall digital cryptocurrency to fall below the record high of $1 trillion, wiping out nearly $260 billion in market value, a drop of nearly 10%. In addition to Bitcoin, mainstream digital currencies have fallen by 15% to 35% in the past 24 hours. Ethereum, which ranks second in market value, once fell below the psychological mark of $1,000 per coin. It hit a three-year high of $1,350 last week.

Analysts pointed out that the sharp fluctuations in Bitcoin prices within a few days have aroused the market's memory of the sharp drop in Bitcoin prices after the bubble burst in 2017. Bitcoin prices have soared by more than 300% in the past year, reaching a record high of $42,000 last Friday, rising from $20,000 to $40,000 in less than a month. The UK financial regulator FAC today issued a stern warning that consumers of cryptocurrencies "should be prepared to lose all their money."

Rabobank said in a research report that the strengthening of the U.S. dollar and the rise in U.S. bond yields over the past week have caused a drop in the prices of Bitcoin and gold. Scott Minerd, chief investment officer of Guggenheim, who predicted in late December that Bitcoin would eventually reach $400,000, said on social media: "It's time to take some profits. Bitcoin's parabolic upward trend is not sustainable in the short term."

On Monday, the U.S. dollar index stood above the 90 mark, close to a three-week high, having fallen to a 33-month low last week. Previously, the market was still hotly discussing whether Bitcoin had begun to replace gold and become a new safe-haven asset.

Currently, the market has huge differences in views on Bitcoin.

Bank of America analyst Michael Hartnett wrote in a note on Friday:

In the past two months, Bitcoin has soared 180%, and the market value of the entire digital currency market has exceeded $1 trillion.

If we visualize the bubbles in recent decades, there is no doubt that Bitcoin is the "mother of bubbles."

On Sunday, January 10, Howard Wang, who once worked as an analyst at Bridgewater, the world's largest hedge fund, wrote an article stating that Bitcoin is a huge bubble and it is difficult to predict its top at present.

First, Howard Wang said that in its current form, Bitcoin is not a viable currency alternative.

The reason is that if the annual inflation rate of the United States is measured in Bitcoin rather than the US dollar, then the inflation rate in the United States in 2018 will reach 275%, and in 2019 it will be a deflation of -50%. By 2020, the deflation rate will further reach -75%.

The above analysts said that a healthy society cannot function under such price fluctuations, and even if Bitcoin may mature in the future, as it stands now, it is just a speculative asset.

From this, he further believes that it is almost certain that Bitcoin is in another bubble and the current growth rate is unsustainable. If Bitcoin is as crazy in 2021 as it was in 2020, the market value of this digital currency will exceed the total value of the US dollar in circulation.