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Recovery rally takes bitcoin back above $40k; Treasury proposal weighs on gains

ForexMay 20, 2021 03:47PM ET
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3/3 © Reuters. A representations of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken,May 19, 2021. REUTERS/Dado Ruvic/Illustration 2/3

By Thyagaraju Adinarayan, Stanley White and David Randall

LONDON/TOKYO/NEW YORK (Reuters) -A rebound in bitcoin held strong on Thursday, even as the U.S. Treasury Department called for new rules that would require large cryptocurrency transfers to be reported to the Internal Revenue Service and the Federal Reserve flagged the risks cryptocurrencies posed to financial stability.

The comments from U.S. officials come one day after a brutal sell-off on concerns over tighter regulation in China and unease over the extent of leveraged positions among investors sank the world's biggest cryptocurrency to its lowest level since late January.

Bitcoin was recently up more than 4% at around $40,000, after earlier jumping more than 10%. Thursday’s gains brought the currency’s price to approximately where it traded in early February. Smaller rival ether was up around 14% after Wednesday’s 28% tumble.

The rally in cryptocurrencies Thursday came after prominent backers such as Ark Invest's Cathie Wood and carmaker Tesla (NASDAQ:TSLA)'s Elon Musk indicated their support on Wednesday.

Wood said in an interview with Bloomberg that she was still sticking to her $500,000 forecast. Musk reiterated that Tesla was holding onto its bitcoin investments.

"It's too early to say if the rebound we've seen off the lows in crypto has legs," said Chris Weston, head of research at brokerage Pepperstone in Melbourne.

"I question if we will get a chance to catch our breath or is there more volatility in store?"

Weston pointed to how $9.13 billion of cryptocurrency positions had been liquidated across exchanges over 24 hours, and $532 billion in total volume transacted.

Wednesday's declines in both digital assets were one of their biggest daily percentage moves in more than a year, with investors rushing to exit trades that until recently were outperforming traditional markets such as stocks and bonds.

Wednesday's volatility fuelled record turnover. Data from CME showed volumes on bitcoin futures soared to 32,356 contracts, more than three times the average volumes for May.

While turnover on Thursday declined from the frenzied volumes seen overnight, May contracts still showed more than 6,000 contracts traded. Similar trends were observed on CME's micro bitcoin futures where nearly 95,000 contracts were traded on Wednesday.

The catalyst was a statement by Chinese financial industry bodies banning the use of cryptocurrencies in payment and settlement. China also prohibited institutions from providing crypto-related products or exchange services between cryptocurrencies and the yuan or foreign currencies.

"A defining factor for China's decision is also likely to be their strong push towards a central bank digital currency solution," said Alexander Ruchti, next-generation research analyst at Julius Baer.

"The past week's steep and rapid decline once more underpins how susceptible the segment is towards sentiment swings."

Bitcoin had been under pressure after a series of tweets last week by Musk, a major cryptocurrency backer, chiefly his reversal on Tesla accepting bitcoin as payment.

The slide forced some investors to close out leveraged positions in cryptocurrency derivatives, which caused prices to fall further, traders said.

Still, some analysts saw Thursday's gains as a sign that investor sentiment remains bullish.

"People consider this as a 'buy-the-dip' moment, and many consider this as 'the last chance to buy bitcoin cheap'," said Ruud Feltkamp, chief executive at crypto trading bot Cryptohopper. "The next few months will show if the bull market will continue or if it's the start of the end of its run."

CROWDED ETHER

Coming off a six-fold jump on the back of rising usage in non-fungible tokens on digital art platforms, ether's sell-off was far more damaging, with the digital currency trading 39% below its record highs.

James Quinn, managing director at Q9 Capital, a Hong Kong-based cryptocurrency private wealth manager, said the selling reflected huge crowded positions in ether.

Ether is still up more than 270% so far this year, however, outperforming bitcoin's year-to-date gain of 37%.

"This can also be the moment when bitcoin starts reclaiming the market momentum from ether and other altcoins that have had room to outperform BTC in the last four months," said Ulrik Lykke, executive director at crypto hedge fund ARK36.

While some retail traders saw missed opportunities in the slide, others saw the rout as a chance to pick up digital assets on the cheap.

"There has certainly been a change in tone in the market after the sell-off. But this also a market that has shown extraordinary returns over the last year to 18 months," said Seth Ginns, managing partner and head of liquid investments at CoinFund.

Recovery rally takes bitcoin back above $40k; Treasury proposal weighs on gains
 

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Comments (16)
perplexed76 .
perplexed76 . May 21, 2021 1:03AM ET
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"to be reported to the Internal Revenue Service" lol end of story. Young gamblers better to start searching a job.
Peemil Nicho
Peemil Nicho May 20, 2021 7:52PM ET
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treasury can't touch crypto and muskonly paper tiger,gogo to the mars
Anita Yellow
Anita Yellow May 20, 2021 5:40PM ET
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i thought Tether is King Coin nightmare margins and liquidation made it drooling fall to the floor , it happens when you cross the thin red line deathcross i personally call it crypto suicide , your chance of being able to escape and survive is only 0.3 - 0.4% speed of light .guys dont take it seriously , im just kidding 🤩
Julius Stephen
Julius Stephen May 20, 2021 2:31PM ET
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wow OK nice
Taylor Swanson
Taylor Swanson May 20, 2021 1:21PM ET
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All you gay bears mad today we got here without Musk and China and we will continue without them. Panic selling like noobs
oeg vokar
oeg vokar May 20, 2021 1:21PM ET
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And how you "got here"? What are producing/selling?
Roger Pruzansky
Roger Pruzansky May 20, 2021 1:21PM ET
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let the gay bears sit on a big fat green candle.
Taska Luwenskie
Taska Luwenskie May 20, 2021 10:21AM ET
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if crypto depends on musk tweets, it's doomed. by the end of the day it has to have institutional backing.
Whaling Trawler
Whaling Trawler May 20, 2021 8:56AM ET
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Michael Saylor was probably crying to Elon ..he is such an ugly dude
Josh Harvey
Josh Harvey May 20, 2021 8:56AM ET
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Should jump off a bridge
Peemil Nicho
Peemil Nicho May 20, 2021 8:43AM ET
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you are everything musk ,gov.cant touch crypto,wait only tweet
Peemil Nicho
Peemil Nicho May 20, 2021 8:42AM ET
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gogo musk
Pratt Man
Pratt Man May 20, 2021 8:20AM ET
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Why would anyone or any company want to put any amount of asset into something that fluctuates so violently. They won't.. It's a toy for traders who like to gamble and will never be anything more.
Ricardo Gaspar
Ricardo Gaspar May 20, 2021 8:20AM ET
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Perhaps to have huge amounts of profits.....don't know....just a guess.....
Alejandro Ca
Alejandro Ca May 20, 2021 8:20AM ET
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daily wild swings and volatility don't matter. Crypto has proven that if you invest and hold, you will profit. Keep in mind Bitcoin was $10 ten years ago
joy city
joy city May 20, 2021 7:50AM ET
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Desperately salvaging their golden goose. t
Bulent Ok
Bulent Ok May 20, 2021 7:16AM ET
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500.000 is over optimistic... Not realistic at all... I reckon before going in to bear market it will reach 100k then tank to about 70k and then enter bears market for good year or two... Anybody that bought the dips yesterday are going to 3 fold earnings before bear market.
Edward Chong
Edward Chong May 20, 2021 6:21AM ET
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wow cathie is amazing.
Andy Darmawan
Andy Darmawan May 20, 2021 6:20AM ET
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not for long
Abdelraziq Abuaisha
Abdelraziq Abuaisha May 20, 2021 3:57AM ET
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Big bubble run for your life :)
IBRAHIM GARBA UMAR
IBRAHIM GARBA UMAR May 20, 2021 3:25AM ET
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Hello
IBRAHIM GARBA UMAR
IBRAHIM GARBA UMAR May 20, 2021 3:25AM ET
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hello
 
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