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The bitcoin price tumbled for a second straight day on Tuesday, briefly plunging below $46,000 before regaining some ground, as investors second-guessed the recent market rally.
Bitcoin (BTC) stood at $49,179 at 7.55 am ET on Tuesday – after hitting a record high of more than $58,000 on Sunday – taking its one-day losses to around 8.8% on the Coinbase exchange, although trading was very volatile.
That put it on track for the biggest daily drop since the currency shed around 13% on January 21. At one point on Tuesday morning bitcoin had shed 17% to as low as $44,888 on Coinbase, which would have been the biggest fall since March 2020.
Bitcoin has soared in 2021, with the price more than doubling this year to reach a record $58,376. Increased interest from big companies such as Tesla, as well as record amounts of stimulus, have powered the rally.
Yet the price tumbled to below $47,000 on Monday before recovering somewhat as fears about valuations hit markets, with the US’s tech-heavy Nasdaq index slumping 2.46%. Expectations of stronger growth and inflation have also triggered a pivot to the cheaper sectors of the market.
The slide picked up speed on Tuesday, as speculators ditched highly volatile cryptocurrencies.
Remarks from Treasury Secretary Janet Yellen were another factor. She told CNBC bitcoin is “an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.”
“I don’t think that bitcoin… is widely used as a transaction mechanism,” she said. “To the extent it is used, I fear it’s often for illicit finance.”
Elon Musk’s comments over the weekend that bitcoin and rival token ether “seem high” were also a factor. Musk has played a large part in the cryptocurrency rally, and his remarks carry weight among many bitcoin enthusiasts.
The ether (ETH) price also tumbled, with the Ethereum network’s currency down around 19% to $1,520. XRP was down around 21% while Binance’s coin was roughly 14% lower.
Pankaj Balani, chief executive of crypto derivatives exchange Delta, said the downward correction in bitcoin and other currencies had been coming.
“Some leverage has been cleared but the volatility should persist for a few sessions followed by a consolidation in BTC and ETH prices before the next move up.”