Bitcoin drops below $40K, but buyers are hopeful that price will rise in the future

Bitcoin drops below $40K, but buyers are hopeful that price will rise in the future
  • Bitcoin has dropped by 12.5% in the last 24 hours as China solidified its stance.
  • Technical analysis of Bitcoin's 14-day Relative Strength Index (RSI) shows entry into oversold levels.
  • Despite the short-term massacre, "long bitcoin" is the world's most crowded trade.
Bitcoin has dropped by 12.5% in the last 24 hours as China solidified its stance on cryptocurrencies. It has prohibited its financial institutions and payment companies from providing cryptocurrency-related services. The restriction will make it far more difficult for an ordinary Chinese citizen to invest or trade in cryptos. The country already has a firewalled internet, which makes it easier for authorities to clamp down.

The month of May is testing Bitcoin, and its backers' resilience as the cryptocurrency has plummeted almost 40% from its mid-April peak. Alarmingly, it's now valued at less than $40,000 per coin ($39,195 as of 12:30 p.m. on Wednesday) -- a massive fall from an all-time high of $64,829. The bearish trend is also visible on other cryptos like Ethereum and Dogecoin.

Bitcoin is the most significant token with a market cap of more than $700 billion. It dominates the race and has become a household name that's synonymous with cryptocurrencies. It's often informally considered to be a generalised crypto index that can be used to gauge industry-wide sentiment.

The charts and technical analysis of bitcoin's 14-day Relative Strength Index (RSI) show entry into oversold levels. A fall below the $40,000 also means that bitcoin is testing its average price over the past 200 days -- a milestone it hasn't backtracked since September 2020.

China's restriction will hamper the registration, negotiation, clearing, and settlement of digital currencies. The country hasn't officially regulated or banned crypto and has opted for communication via industry bodies.

While countries are still evaluating their options, even veteran backers like Elon Musk have taken a step back. Last week, the Tesla CEO announced that the carmaker would no longer accept bitcoin payments as the currency is not safe for the environment. Bitcoin mining requires a lot of energy, which is generated by conventional methods like coal and fossil fuels.

Despite the short-term massacre, a Bank of America survey says "long bitcoin" is the world's most crowded trade. It means that buyers are hopeful the price will rise in the future and that the current depression shall be short-lived.

The most popular coin is also getting fierce competition from the runner-up (in terms of market cap) -- Ethereum. According to research house Two Prime, the Ethereum ecosystem is bound to grow, thanks to its unique capabilities, credibility, and volume. Bitcoin and Ethereum have always shared their trajectory in terms of movement, but this is slowly changing. Ethereum is stepping out of Bitcoin’s shadow thanks to the recent NFT (non-fungible tokens) hype. It finally has a differentiating factor in the public lens.

A NFT is a unique asset that lives online and is managed in a digital ledger. Ethereum’s blockchain can support them and even issue a certificate of authenticity. This ensures that any data hosted online isn’t easily manipulated or duplicated.

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