China's intensifying cryptocurrency crackdown has left Bitcoin flirting with $30,000, a price level seen as key to the short-term outlook for the largest virtual currency.
Bitcoin fell as much as 4.3% Tuesday to $31,171, and for some a breach of $30,000 would hurt sentiment and raise the risk of a steeper selloff. It was trading at $32,850 as of 8 a.m. in London.
"We're most likely going to continue to trade within the $30,000 to $40,000 range and, hopefully, $30,000 will hold as the low of the year," said Antoni Trenchev, co-founder of crypto lender Nexo in London. "If not, we should revisit $25,000 and even $20,000 before the next leg up."
China's latest broadside came Monday, when the nation's central bank said it had summoned officials from the biggest lenders as well as AliPay to reiterate a ban on cryptocurrency services. Concerns about the environmental impact of the energy-hungry computers that underpin Bitcoin also continue to swirl. Chinese officials are already trying to root out crypto mining operations.
Meanwhile, the prospect of reduced stimulus as the global economy recovers from the pandemic is also sapping the appetite for speculative investments.
Bitcoin's retreat has dented the argument put forward by advocates like Michael Saylor of MicroStrategy Inc. that the virtual currency is a dependable store of value. MicroStrategy said Monday it had purchased an additional 13,005 Bitcoins for about $489 million at an average price of about $37,617.
The news did little to bolster prices amid concerns that wider institutional adoption is stalling after Elon Musk and Tesla ooled on Bitcoin.
A conclusive break below $30,000 would mean a "massive hit" to sentiment and possibly "heavy selling activity" across the cryptocurrency market, Pankaj Balani, chief executive officer of digital asset derivatives exchange Delta Exchange, wrote in an email. But he expects the coin to rebound and challenge $40,000 in coming weeks.
An explosion in the popularity of so-called alternative coins outside of Bitcoin and Ether, as well as an increase in leveraged bets on the top two, were hallmarks of the crypto boom earlier this year. Both trends have ebbed in the wake of a rout in the sector in May.
Ether, the second biggest token, at one point slipped 4.2% on Tuesday. Retail favorite Dogecoin tumbled 22% over the past 24 hours.
"Most cryptocurrencies have lost upside momentum versus Bitcoin after having outperformed," said Katie Stockton, founder of investment research provider Fairlead Strategies.
Bitcoin has roughly halved from a record of $65,000 in mid-April, though over the past year it's still up over 200%. The wider Bloomberg Galaxy Crypto Index has more than quadrupled over 12 months.
"Negative trading conditions in the market are coming from an overly long position built up in the strong first-quarter runup that has not cleared itself out yet," said Adam Reynolds, chief executive officer for Asia-Pacific at Saxo Capital Markets Pte.