Bitcoin Loses 10% of Value in 24 Hours, Crypto Down 14% Worldwide

Major cryptocurrencies have taken a hit and are down about 14% worldwide, led by Bitcoin, which represents about 60% of the market by value, CoinMarketCap reported.

Bitcoin recently changed hands at $47,516.18, down about 10.04% in the last 24 hours, and down about 18.54% from its all-time high of $58,332.36, CoinDesk reported. Ethereum, the world's second largest cryptocurrency, fell 9.65% to $1,554.20.

Crypto
A man stands next to the bitcoin sign during Riga Comm 2017, a business technology and innovation fair in Riga, Latvia November 9, 2017. REUTERS/Ints Kalnins

The plunge slashed Bitcoin's market cap—the value of all coins in circulation—to about $878 billion, down from more than $1 trillion last week.

The sharp downturn in the cryptocurrency market will hammer unsophisticated retail buyers, but create a buying opportunity for long-term investors betting on a rebound and future gains, a Bitcoin analyst believes.

"Corrections are essential for a healthy market in the long term," Jason Deane, Bitcoin analyst at Quantum Economics in London, told Newsweek. "Once the asset has stabilized, it allows consolidation and often new price discovery at a later stage.

He said some analysts are continually looking for Bitcoin to fail.

"There are some who will try and spin this inevitable correction as evidence that 'Bitcoin can't work' to fit their own agendas," Deane said. "But the underlying fundamentals and demand are solid and growing. The long-term trends are where you should be looking."

Despite the dip, Bitcoin is up 62.46% year-to-date, CoinDesk said.

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Deane said panic selling among individual investors can worsen the downturn.

"Retail investors tend to be less sophisticated and buy assets without understanding the fundamentals or buy on the advice of friends and colleagues," Deane said.

He stressed that individual investors can be hurt when they fail to keep their eye on the long game.

"They are often unprepared for large movements that experienced traders take as part of the course," Deane said. "So when this happens, they tend to make decisions based on emotions rather than objectives. In this case, that usually means a panic sell, often at a loss rather than holding for longer term gains, exaggerating the effect of the selloff."

Prior Warnings

Analysts at JP Morgan Chase have warned that Bitcoin's price exceeded estimates of fair market value, suggesting a correction was due. Last weekend, Elon Musk tweeted that prices for Bitcoin and Ethereum "seem high." He said Bitcoin is "almost as bs as fiat money."

Elon Musk
Elon Musk wears a face mask as he arrives to attend a meeting with the leadership of the conservative CDU/CSU parliamentary group in Berlin on September 2, 2020. Tobias Schwarz/AFP via Getty Images

In January, Musk disclosed in a filing with the U.S. Securities and Exchange Commission that his company, electric car builder Tesla, had invested $1.5 billion in Bitcoin and would accept it for future purchases.

Skeptics remain unconvinced of Bitcoin's long-term value and utility. A Goldman Sachs analyst said the cryptocurrency is too volatile to be a store of value.

Investors Could Lose Everything

A British governmental watchdog warned that investors should be prepared to lose all their money.

"It is a highly speculative asset and I think people should be aware it can be extremely volatile," Janet Yellen, Secretary of the U.S. Treasury, told CNBC Monday.

"I do worry about potential losses that investors can suffer."

Janet Yellen at Joe Biden WH presser
Treasury Secretary Janet Yellen listens to President Joe Biden as he delivers remarks on the national economy at the White House on February 05, 2021 in Washington, DC. Stefani Reynolds/Getty

She said Bitcoin is an "extremely inefficient way of conducting transactions" and noted "the amount of energy that's consumed in processing those transactions is staggering."

While Mastercard, PayPal and other payment systems now accept, or plan to accept the cryptocurrency soon, many investors—especially major financial institutions—buy and hold Bitcoin as a bet on future price appreciation.

Growth of this strategy is underscored by Bank of New York Mellon's recent announcement that it will set up custody accounts for major players investing in Bitcoin.

Bitcoin has captured the eye of some merchants. An artist in Malibu, California said he plans to conduct future transactions in Bitcoin, but will reluctantly accept dollars.

A Bull's Case for Bitcoin

Despite the downturn Bitcoin bulls remain convinced of the cryptocurrency's future. Quantum's Deane said traders "relish volatility" because it allows those who buy on the dip and sell on the rebound to make "disproportional gains."

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Tourists pose at a bronze sculpture of a bull, the symbol used by Wall Street for positive times in the market, in New York in January 2008. Chip East/Reuters

But the correction also benefits long-term Bitcoin investors.

"We already know [investors in] this group are more likely to take their newly acquired Bitcoin off the exchanges and into long-term storage, thereby depressing supply going forward," Deane said. "As long as that activity continues, as seems to be the case, a rebound is inevitable."

Deane said it's something of a sprint to the finish line for investors.

"Effectively, we are in a race to acquire the remaining Bitcoin before the reduction in supply drives prices permanently north," he said.

The number of Bitcoin worldwide is capped at 21 million. Nevertheless, Deane expects Bitcoin to remain volatile in the immediate future.

"We are still in the speculative and early investment phase of the lifecycle and do not expect that volatility to reduce until well into the adoption phase," he said.

Rising Bond Yields

Some long-term investors see Bitcoin as an inflation hedge, especially in view of the U.S. Federal Reserve's easy money policies as part of the effort to first stabilize and then restart the economy during the COVID-19 pandemic.

Jerome Powell
Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System during the Senate's Committee on Banking, Housing, and Urban Affairs hearing examining the quarterly CARES Act report to Congress on September 24, 2020 in Washington, DC. Toni L. Sandys-Pool/Getty

In testimony before the Senate Banking Committee on Tuesday, Federal Reserve Chairman Jerome Powell said low interest rates and bond buying will continue.

"The economy is a long way from our employment and inflation goals," he testified.

He said the Fed therefore will continue its policy of near-zero interest rates and asset purchases until "substantial" progress is made, a goal that's "likely to take some time" to reach.

U.S. bond yields are up, suggesting expectations of an economic recovery. Higher bond yields make speculative assets, including cryptocurrencies, less alluring to investors.

But some fear massive government spending will lead to inflation and threaten the dollar's standing as the world's reserve currency. Such concerns could boost Bitcoin and other cryptocurrencies.