Bitcoin Slips Below $40,000 For First Time Since February, Know Reasons Behind This Fall

The downward trend in bitcoin has been majorly prompted by Tesla and SpaceX founder Elon Musk's realisation that cryptocurrencies are "energy intensive" i.e. – not environment friendly.

The world’s biggest cryptocurrency, bitcoin, which remained under pressure for some time now has nosedived below the $40,000 level for the first time since 9 February after China extended the ban on financial and payment institutions for dealing in digital assets and warned investors against speculative crypto trading.

This is not the first time when China had issued such a warning. In 2017, it had shut local crypto exchanges and in 2019 the country blocked access to domestic and foreign cryptocurrency exchanges.

On Wednesday, bitcoin was trading 13 percent lower at $39,204.97 after falling to as low as $39,040.08 during the past 24-hour period, as per CoinGecko. The cryptocurrency is now 40 percent lower than its all-time high of 64,804.72, which was hit on 14 April 2021.

A look at the major reasons that prompted the cryptocurrency to slide

China's warning on speculative trading of cryptocurrency

In an attempt to curb the growing digital trading market, China has gone ahead and banned financial institutions and payment companies from providing services related to cryptocurrency transactions. As per the news agency Reuters, the latest ban directs institutions, including banks and online payments channels, not to offer clients any service involving cryptocurrencies, such as registration, trading, clearing, and settlement.

Of late the prices of cryptocurrency prices have skyrocketed leading to speculative trading of cryptocurrency and infringing on the safety of people's property and disrupting the normal economic and financial order," said three industry bodies in a joint statement on Tuesday.

Elon Musk tweets also hit bitcoin

The downward trend in bitcoin has been majorly prompted by Tesla and SpaceX founder Elon Musk's realization that cryptocurrencies are "energy-intensive" i.e. – not environment friendly. The price of the world's largest cryptocurrency bitcoin slipped last week from almost 54,819 to $45,700, its lowest since March 1, within a span of less than two hours following the tweet by Tesla CE Elon Musk saying the company had stopped accepting bitcoin to purchase its vehicles citing climate concerns.

Musk disclosed that Tesla would not sell any bitcoin and would resume accepting bitcoin as soon as mining transitioned to more sustainable energy.

"Energy usage trend over past few months is insane," Musk tweeted on Thursday. As per AFP, he shared a chart from the Cambridge Bitcoin Electricity Consumption Index (CBECI) to support his thought. On May 18, prices dropped over 8 percent after Musk's Twitter exchange sparked speculation that the electric carmaker may have dumped or is planning to dump its entire bitcoin holding. However, he put rumours to rest saying that the company hadn't sold any holdings, which buoyed prices, but investors were left fuming at the lack of maverick CEO's online stances.

‘Buy-and-dip’ mentality expect investors to migrate

A report in Business Insider stated bitcoin option traders estimate a price drop below $40,000 by June 2021. An exchange CEO told the publication that “there was little sign of buy-the-dip mentality among bitcoin traders and investors appeared to be a lot more pessimistic this time around”.

Citing the data on Skew exhibiting around $3.5 billion worth of options contracts flowed towards bearish options, it is believed that investors will remain bullish. As per the expert's view in the report, Bitcoin is expected to remain “range-bound” between $35,000 and $50,000 until June, based on options movements.