Bitcoin rallies 17% in a day after dropping below $30,000

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Bitcoin has rebounded after a volatile session in which it fell below $30,000, recovering losses sparked a day earlier when China‘s central bank deepened a crackdown on cryptocurrencies.

On Wednesday morning, Bitcoin rose as much as 17 percent, to $34,818, surging a day after hitting its lowest level since January.

Bitcoin supporters said that the correction was simply weeding out weak-willed investors with so-called ‘paper hands,’ but a third of institutional investors told JPMorgan that cryptocurrency was ‘rat poison’ or believe it is a temporary fad.

Only 10 percent of institutional investment firms surveyed by JPMorgan trade cryptocurrencies, however, asked about their personal investments, 40 percent of the investors said they were active in cryptocurrencies.

On Wednesday morning, Bitcoin surged a day after hitting its lowest level since January

On Wednesday morning, Bitcoin surged a day after hitting its lowest level since January

Billionaire investor Warren Buffett has in the past characterized Bitcoin as ‘rat poison squared’. One third in the JPM survey agreed with that view. Another 16% thought it was a temporary fad. 

Four-fifths of investors also expected regulators to get tougher on the asset class, while a whopping 95 percent of them believed fraud in crypto world was ‘somewhat or very much prevalent’, the survey released late on Tuesday found. 

Meanwhile, crypto supporters said that the bounce-back was evidence of Bitcoin’s resilience, mocking panicked investors who sold during yesterday’s lows.

‘We had 200 days of market expansion. You can’t have a number go up forever. That doesn’t happen in any market,’ crypto bull Meltem Demirors told CNBC.

‘What we’re seeing is a correction, a contraction, and a lot of what is getting shaken out is what we call the ‘paper hands,’ the ‘weak hands,’ she added.

‘Paper hands’ is slang for investors who are scared off by fluctuating prices, the opposite of ‘diamond hands’ who hold on to assets despite headwinds.  

During Tuesday’s sell-off, CNBC host Jim Cramer announced that he had sold ‘nearly all’ of his Bitcoin, citing the China crackdown and fears of greater U.S. regulation.

During Tuesday's sell-off, CNBC host Jim Cramer announced that he had sold 'nearly all' of his Bitcoin, citing the China crackdown and fears of greater U.S. regulation

During Tuesday’s sell-off, CNBC host Jim Cramer announced that he had sold ‘nearly all’ of his Bitcoin, citing the China crackdown and fears of greater U.S. regulation

Crypto supporters said that the bounce-back was evidence of Bitcoin's resilience, mocking panicked investors who sold during yesterday's lows

Crypto supporters said that the bounce-back was evidence of Bitcoin’s resilience, mocking panicked investors who sold during yesterday’s lows

Bitcoin’s Tuesday fall also pressured smaller coins such as Ether. It tumbled 11 percent on Monday, its largest one-day drop in over a month, with losses of roughly 56 percent since hitting an all-time high of just under $65,000 in mid-April.

The earlier sell-off was sparked by the People’s Bank of China urging China’s largest banks and payment firms to crack down harder on cryptocurrency trading, the latest tightening of restrictions on the sector by Beijing.

‘The underlying fundamentals of the crypto-asset world have not changed and this correction was more of a when, not if,’ said Iqbal Gandham, vice president of transactions at Ledger, a digital asset management solution.

‘Any asset class which sees a meteoric rise in the same way as we have seen in crypto is expected to correct. The situation in China has perhaps exacerbated this, along with the increased rate of adoption of altcoins by new users, following tweets of various crypto personalities.’

Bitcoin’s chart outlook has darkened after it broke below the neckline of a massive head-and-shoulders top formation at $30,393, bringing closer a test of key chart support that could potentially wipe roughly 40 percent off its current value.

After Monday’s PBOC statement, banks including Agricultural Bank of China and Ant Group’s payment platform Alipay said they would step up monitoring to root out crypto transactions.

Bitcoin remained nearly 50% off its peak price in May, but found support at $30,000

Bitcoin remained nearly 50% off its peak price in May, but found support at $30,000

Ethereum also rebounded on Tuesday but remained well off its May peak price

Ethereum also rebounded on Tuesday but remained well off its May peak price

Ether, the token used for the Ethereum blockchain and the second-largest cryptocurrency, last traded up 14 percent at $1,985. It earlier dropped to $1,700, its lowest in a month.

It broke through key structural support in a sign that longs could be capitulating as China’s crackdown rippled through the cryptocurrency universe.

Evidence of the impact of the mining curbs is emerging. The so-called hash rate of the bitcoin network – a measure of its processing power that shows how much mining is taking place, on Monday hit its lowest level since late 2020.

Authorities in major bitcoin mining hubs including Sichuan, Xinjiang, and Inner Mongolia have issued their own curbs with greater details on the restrictions.

Iran in late May also banned the energy-intensive mining of cryptocurrencies like Bitcoin for nearly four months, as the country faces major power blackouts in many cities. 

On Tuesday, state media reported that police have seized 7,000 computer miners at an illegal crypto farm, their largest haul to date of the energy-guzzling machines.

The crackdown on miners will likely hit prices in the short-term, market players said.

Mike Novogratz, founder and chief executive officer at Galaxy Digital, a crypto-focused financial services firm, and one of the largest crypto investors, told CNBC on Tuesday that China’s actions has created ‘a retail deleveraging.’

‘A lot of crypto happens in Asia, a lot of it is Chinese focused. So we´re seeing big liquidations, so it’s hard to call a bottom.’

Three industry associations in China last month issued a similar ban on crypto-related financial services, though market players said it would be hard to enforce as banks and payment firms could struggle to identify crypto-related payments.

Beijing’s targets are crypto miners, but China’s State Council, or cabinet, said last month it would tighten restrictions on producers as well as traders of bitcoin.

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