Major sell off touched off dip in Bitcoin price

In Summary

• Bitcoin first hit the $1 trillion market capitalization milestone on February 19th, trading at $53,038, as major firms from Tesla to Mastercard announced investments or new support for the cryptocurrency.

Bitcoin
Bitcoin

The price of Bitcoin appears to be hitting a wild note, rattling the nerves of investors caught off guard by its sudden rise and soon followed by a significant dip. Early Last week Bitcoin rallied to a new record high, reaching $61,923 on Saturday, but the crypto retreated to below $55,000 Monday morning. 

The rally lifted Bitcoin to a $1 trillion market capitalization for the second time early last week, buoyed by institutional support. The cryptocurrency fell as low as $54,588.83 and made a small comeback to $56,689, according to cryptocurrency data provider Messari. 

Bitcoin first hit the $1 trillion market capitalization milestone on February 19th, trading at $53,038, as major firms from Tesla to Mastercard announced investments or new support for the cryptocurrency.

The latest plunge came as a result of an aggressive sell-off as 185,350 trades worth approximately $2.22 billion were liquidated by crypto exchanges, mostly in Bitcoin, according to Bybit, a cryptocurrency futures trading and information platform.

Binance and Bybit exchanges saw the largest withdrawals. The largest single liquidation order of $18.94 million worth of Bitcoin occurred on the Huobi exchange.

Analysts, though, have different interpretations of the slump, with some suggesting that an institutional holder may have been taking profits or exiting the market. 

The heavy withdrawals coincided with reports Sunday evening that India will propose a law banning trade and possession of digital assets. If signed into law, India would be one of the first major economies to make cryptocurrency holdings illegal. 

The latest volatility has excited Bitcoin CFDs (Contract for Difference) traders, who see the developing signalling more legroom for speculators. CFDs are investment vehicles that allow speculation on Bitcoin trading without buying the coins.

Simply, Bitcoin CFDs and futures allow investors to strike a deal about the future price of Bitcoin and profit (or lose) from price changes. CFD brokers can hold licenses from financial regulators, unlike cryptocurrency exchanges that are mainly unregulated and therefore don’t have to follow rules for client protection.

Apart from Bitcoin, Ether is also seeing a rally as the community prepares for an upgrade that will change how transactions work and start to destroy coins.

Meanwhile, as the cryptocurrency market gets more exciting, retail traders are battling out with the big banks as Bitcoin continues to surge. Data compiled by JPMorgan Chase & Co. suggests that retail investors have purchased over 187,000 Bitcoins so far this quarter, compared to roughly 205,000 last quarter, strategists including wrote in a Friday report.

At the other end, institutions have bought about 173,000 of the world’s largest cryptocurrency over that time frame - as gathered by Bitcoin futures, fund flows and company announcements - after buying nearly 307,000 in the last quarter of 2020.