Rapid recovery uncertain following Bitcoin’s recent plunge
15:24, 4 September 2020
Bitcoin fell by 10.7 per cent on Thursday, after the world’s leading cryptocurrency rejected the $12,000 benchmark for the third time in a month.
In a reminder of the digital asset’s innate volatility, BTC shed $1,214 within 24 hours. Indeed, it briefly dipped below $10,000 for the first time since late-July.
It is thought that well over $100m (£76m, €85m) worth of long option bets were liquidated as a result of the dive downwards.
The rampant central bank intervention and government stimulus introduced in the wake of the Covid-19 crisis increased Bitcoin’s attraction, with both retail and institutional investors drawn in by a potential hedge against inflation and digital store of value.
More recently, the crypto gained at the start of the week thanks to the dollar weakening to a two-year low.
Despite the appeal of an asset seemingly separate from the world of traditional finance, the performance of Bitcoin in 2020 has arguably been closely correlated to the performance of global equities markets.
Thursday witnessed the first major correction in the long-running US tech stock rally. The likes of Apple, Tesla and Zoom fell by 8, 9 and 9.9 per cent, respectively and the Nasdaq experienced its worst day since March.
Although already faltering after its earlier rejection from $12,000 and the strengthening of the greenback, BTC followed the market's lead. Other cryptos followed Bitcoin in turn, with Ethereum falling by 13 per cent and Bitcoin Cash by 14.4per cent.
Although Bitcoin added $231 by mid-afternoon Friday trading, there is still uncertainty as to the speed and scale of its potential recovery. The crypto witnessed similar corrections in both April and May, which were themselves rapidly corrected by traders wanting to “buy-the-dip”.
However, in light of BTC’s increasing correlation with the stock market, some have argued that the crypto will suffer as long as the economic uncertainty triggered by Covid-19 continues.
By mid-afternoon, Bitcoin traded up 3.16 per cent at $10,471, a 43 per cent gain from the start of the year.
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