Bitcoin (BTC-USD) continues to surge to new record highs but experts think a price crash could be around the corner.
The world’s biggest cryptocurrency crossed the $40,000 (£29,517) mark for the first time late on Thursday and topped $41,000 early on Friday.
Bitcoin is now worth more than twice what it peaked at during its last record run-up in 2017. That surge, which happened around the same time of year, was followed up a huge slump down to the $10,000 mark and left the cryptocurrency’s price in the doldrums for years. Things began to turn around last year, with the price rapidly gaining momentum from October onwards. The currency has now risen by an astonishing 900% since March 2019.
Analysts think the cryptocurrency could be due another retreat. Bank of America said Friday bitcoin looked like it was in the “mother-of-all-bubbles.”
“A big correction lower in bitcoin is well overdue and signs of it occurring soon are appearing,” said George Vessey, a currency strategist at Western Union.
“This could be a massive pump before a major selloff in the coming days,” said Neil Wilson, chief market analyst at Markets.com. “I’d be mindful of a big crash, but shorting Bitcoin has consistently been a pain trade like shorting Tesla.”
Unlike 2017, analysts and market participants seem to agree that bitcoin’s price rise this time around is largely being driven by institutional investors.
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“We are seeing a continued demand spike driven largely by sustained and unprecedented institutional interest,” said Frank Spiteri, chief revenue officer at CoinShares.
Spiteri pointed to data showing that trade on highly regulated crypto exchanges, which are favoured by institutions, now made up 58% of the market. A string of traditional financial companies have announced an interest in bitcoin in recent months.
“It's not only institutions like MassMutual and Guggenheim Investments investing in bitcoin, but also company treasuries, like Square and Microstrategy,” said Joe DiPasquale, chief executive of cryptocurrency hedge fund BitBull Capital. “This has even led to rumours of other institutional investors and company treasuries quietly entering the space, with announcements to come.”
DiPasquale thinks bitcoin will top $50,000 before long. But even bulls like him think the path may not be straightforward.
“Bitcoin is inherently volatile,” he said. “While we expect the volatility to continue, we also expect higher highs and more support, leading to higher lows.”
Bitcoin was up 6.7% against the dollar to $41,290.57 by 12pm in London on Friday.
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