By Yasin Ebrahim
Investing.com – Bitcoin fell Monday on profit taking, but its slip below $50,000 prompted investors to buy the dip, signaling strong underlying demand for the popular crypto as institutions continue to jump on the bandwagon.
Bitcoin fell 8.4% to $53,296, though had been as low as $48,255.
The retreat in bitcoin follows a four-week rally, during which it racked up gains of 73%, and its market cap surged above $1 trillion. The price action mirrors the prior four-week rally from below $20,000 to $40,000 during December to January that culminated in a two-week pullback before the upward trend was resumed.
"If something as drastic as that happens [an 80% correction], a pull back below $30k is likely, but I expect that a lot of buy demand would chime in and restore bitcoin to its $50k levels,"said Luis Cuende, co-founder of Aragon, a platform for building & running decentralized autonomous organizations.
The cryptocurrency backdrop has been gaining traction among institutions in the wake of Tesla (NASDAQ:TSLA)'s foray into bitcoin that has so far notched the electric automaker a $1 billion profit.
"Based on our calculations, we estimate that Tesla so far has made roughly $1 billion of profit over the last month from its Bitcoin investment, " Wedbush said in a recent note.
More companies, about 5%, will follow take Tesla's lead and diversify their balance sheets with exposure to bitcoin, with further regulation likely needed to trigger wider adoption.
"We still expect less than 5% of public companies will head down this route until more regulatory goal posts are put in place around the crypto market, which is clearly starting to gain more mainstream adoption in 2021 and we believe will have a seismic impact for blockchain, payments, banks, and semis in the years to come," Wedbush added.
Over the weekend, however, Tesla CEO Elon Musk, who has a knack of moving the price of crypto with a tweet(s), suggested the price of bitcoin appeared "too high."
Still not everyone is convinced about bitcoin's role in the future economy, with Treasury Secretary Janet Yellen sticking with her somewhat critical view of bitcoin, citing increased volatility.
"People should beware it can be extremely volatile and I do worry about potential losses that investors could suffer,” she said in an interview with the New York Times’ Dealbook. She previously characterized bitcoin as "highly speculative."
Recent findings, however, suggest the swings in bitcoin are becoming less wild as liquidity improves. One analyst recently noted that bitcoin's volatility has declined by factor of three over three years.