An illustration of bitcoin on Euro banknotes.
Nicolas Economou | NurPhoto via Getty Images
Bitcoin pulls back from its record highs. The cryptocurrency fell briefly below $ 30,000 on Monday, just two days after breaking the level for the first time.
The price of bitcoin reached a new high over the weekend, reaching above the $ 34,000 mark. The move was followed by an increase in smaller cryptocurrencies such as ether, which for the first time since February 2018 reached the $ 1000 mark.
Bitcoin fell as low as $ 29,316 on Monday around 5:40 ET, up 12% in the last 24 hours. It soon rose above the $ 30,000 level again, but was still more than 10% lower.
“The most likely explanation for a setback is short-term profit-taking by traders, rather than long-term investors,” Jason Deane, an analyst at crypto-consulting firm Quantum Economics, told CNBC in an email. “Given the current sentiment and appetite for Bitcoin, it seems likely that any correction will be short-lived.”
Bitcoin, the world’s largest cryptocurrency by market value, experienced a historic march in 2020 with more than 300%. It was created in 2009 and is considered by advocates to be a decentralized digital currency that forgives the need for any central government, such as a central bank.
Crypto-bulls label bitcoin as an inflation hedge similar to gold in light of unprecedented government stimulus aimed at tackling the coronavirus pandemic. A number of institutional investors have shown greater interest in bitcoin and have allocated a portion of their assets to invest in the digital currency.
“There is no denying that bitcoin has proven itself as an established and top-performing asset,” said Eric Demuth, CEO of digital asset broker Bitpanda. “Bitcoin’s value grew by more than 300% last year as more institutional investors took the leap to accept digital currencies.”
“We see this emerging as part of the recommended allocation strategy for institutional investors and investment banks.”
Well-known investors like Paul Tudor Jones and Stanley Druckenmiller came out as believers in bitcoin last year, while big financial companies like PayPal and Fidelity also moved into space. Meanwhile, people like Square and MicroStrategy have used their own balance sheets to buy bitcoin.
Yet skeptics view bitcoin as a speculative asset with no intrinsic value and a market bubble that is likely to burst at some point.
Bitcoin’s performance in 2020 was reminiscent of the insane rise to nearly $ 20,000 in 2017, followed by a sharp setback the following year. However, crypto supporters claim that the recent rally is different from that of 2017, as it is driven by institutional demand rather than retail speculation.