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Blog: Crypto Pullback Comes Amid Firm Institutional Adoption
Bitcoin, Ether Slump After Record Highs
Following a week of record highs in the world of cryptocurrencies and unparalleled institutional support from sizable companies such as MasterCard, Tesla, and others, the market experienced a slight correction this week as prices of various coins tumbled.
After reaching record highs of over $58,000 last week, the world’s largest cryptocurrency Bitcoin saw a pullback of nearly 18% as the price corrected to $48,000. Shortly thereafter, the coin bounced back above $49,000. This decline pushed the coin’s market cap to $895 billion, after it had nearly eclipsed the $1 Trillion mark for the first time.
The second largest cryptocurrency Ether also experienced pullback of 14%, causing it to contract to $1,540. It has since bounced back above the $1,600 mark. Other cryptocurrencies also experienced pullback, with smaller tokens such as XRP also slipping 17% and tumbling to 47 cents. The turmoil saw nearly $300 Billion wiped off the total market cap of all cryptocurrencies.
Despite the momentary slump in prices amid Bitcoin’s most furious and consistent rally to date, the coin remains up by 360% during the past 12 months alone, with crypto’s current rally not showing signs of letting up.
Why the Dip in Prices?
The correction in prices was most likely triggered by overzealous day traders, who had more than $2.3B of Bitcoin derivative contracts liquidated due to the correction. This, coupled with the market turning towards caution compounded the overall pullback and brought prices even further down. This includes a shocking event on US-based cryptocurrency exchange Kraken which saw a flash crash of the coin Ether from $1,600 to $700 for roughly an hour on February 23. Kraken’s CEO spoke out about this flash crash and confirmed that it was not due any system glitch as some had initially thought, but was rather caused by an extreme sell-off. CEO Jesse Powell also wondered if the crash could have been caused by a single investor who “decided to dump his life savings”.
The tumble in prices coincided with statements made by Treasury Secretary Janet Yellen during a New York Times DealBook conference. In her statements, Yellen referred to Bitcoin as “an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering”. This sentiment is in line with Yellen’s previous statements on crypto, during which she was quoted suggesting that lawmakers “curtail” the use of cryptocurrencies over concerns that they may be used for illegal activities.
Tesla’s CEO Elon Musk also made noteworthy comments this week that coincided with the dip in pricing, as he had tweeted that the price of Bitcoin and Ether “seems high”.
These statements come a little over a week after Musk’s electric vehicle company Tesla announced a purchase of $1.5 billion worth of Bitcoin.
Traders and analysts, however, are looking at this current correction in prices as a predictable bump in the road in the ever so volatile world of cryptocurrencies.
Institutional Adoption Still Going Strong
The slump in pricing has not discouraged large investments which are still going strong. February 2021 has seen unparalleled encouragement from big firms towards cryptocurrencies, with bullish investors providing a steady stream of demand.
Most recently, star investor Cathie Wood (who heads up an investment management firm of the largest actively-managed exchange-traded fund, ARK Investment Management) provided some backing to crypto by revealing that she remains “very positive on Bitcoin,” calling the current drop in prices a “healthy correction” that she is happy about.
Moreover, payments company Square announced an additional investment of $170 million in Bitocoin, also aiding in pushing the price back up. This latest purchase brings the company’s total bitcoin holdings to approximately 5% of its cash and cash equivalents. In a press release shared by the company ahead of the announcement, the financial services aggregator described the latest purchase as “part of Square’s ongoing commitment to bitcoin,” going on to say that “[a]ligned with the company’s purpose, Square believes that cryptocurrency is an instrument of economic empowerment, providing a way for individuals to participate in a global monetary system and secure their own financial future”.
For those who have already incorporated crypto into their portfolio, adoption appears to be paying off. Payments giant PayPal has reportedly seen high engagement numbers from crypto holders since it began accepting crypto transitions on its network. PayPal is set to expand its crypto offerings to other markets, also branching out onto Venmo — a payment app they bought back in 2014. Business intelligence company MicroStrategy has also announced the purchase of another $1.03 billion of cryptocurrency, proving once again that in the eyes of institutions, crypto is here to stay.
Despite the fact that the pullback saw a drop in pricing, many find that it may make for a more appealing product as prices ebb and flow.
Largest Token Burn Coming Up
Also noteworthy this week in the crypto world, cryptocurrency exchange Crypto.com has announced a massive token burn coming up on Monday ahead of its mainnet launch. Crypto.com is set to destroy 70 billion CRO tokens (the exchange’s native token) in what is seen as the largest token burn in the history of crypto. This burn is intended to fully decentralize the network, and dislodge any existing advantage that early adopters of CRO may have. Ultimately, it is set to slow down inflation of a coin’s price. This will also increase supply of CRO from the current 24% to over 80%, leaving more than 5 billion tokens for block rewards.
News of this burn comes ahead of Crypto.com launching “Crypto.org Chain” blockchain on its network on March 25, on which CRO would be the native currency. This further exemplifies the company’s dedication to an aggressively decentralized ecosystem.
In summation, as the market calms down from an over-leveraged position, we find that the prices of several coins have stabilized, a feat that many analysts find provides potential of a fresh more to the upside. Also supporting this recover from massive sell-offs is a continued rise in demand from investors expecting long term gains.
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