An illustration of bitcoin on euro banknotes.
Nicolas Economou | NurPhoto via Getty Images
Bitcoin is pulling back from its all-time highs. The cryptocurrency briefly dipped below $ 30,000 on Monday, just two days after it first crossed that level.
The price of bitcoin soared to a new all-time high over the weekend, reaching $ 34,000. That move was followed by an increase in smaller cryptocurrencies such as ether, which crossed the $ 1,000 mark for the first time since February 2018.
Bitcoin fell as low as $ 29,316 around 5:40 ET on Monday, down 12% in the past 24 hours. It quickly bounced back above the USD 30,000 level, but was still down more than 10%.
“The most likely explanation for a downturn is short-term gains by traders, rather than long-term investors,” Jason Deane, an analyst with crypto consultancy Quantum Economics, told CNBC by email. “Given the current sentiment and appetite for Bitcoin, it seems likely that a correction will be short-lived.”
Bitcoin, the world’s largest cryptocurrency by market value, rallied historically in 2020, rising more than 300%. Founded in 2009, it is seen by lawyers as a decentralized digital currency that eliminates the need for a central authority, such as a central bank.
Today, crypto bulls are hailing bitcoin as an inflation hedge similar to gold in the face of unprecedented government stimuli aimed at tackling the coronavirus pandemic. A number of institutional investors have shown more interest in bitcoin and have allocated some of their assets to invest in the digital currency.
“There is no denying that bitcoin has proven itself as an established and best 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 plunge to embrace digital currencies.”
“We see it emerging as part of the recommended allocation strategy for institutional investors and investment banks.”
Notable investors such as Paul Tudor Jones and Stanley Druckenmiller emerged as believers in bitcoin last year, while major financial firms such as PayPal and Fidelity have also moved into the space. Meanwhile, people like Square and MicroStrategy have used their own balances to buy bitcoin.
Still, skeptics see bitcoin as a speculative asset with no intrinsic value and a market bubble that is likely to burst at some point.
Bitcoin’s 2020 performance was reminiscent of its insane rally to nearly $ 20,000 in 2017, which was followed by a sharp drop the following year. However, crypto fans argue that the recent rally is different from 2017’s as it is driven by institutional demand rather than retail speculation.