Bitcoin (BTC) drops below $40,000 for the first time since early Feb 2021

Bitcoin price update

Bitcoin just dropped below $40,000 for the first time since 8 Feb 2021.

This follows general trend of the broader crypto-market where the value of cryptocurrencies have largely dropped across the board. This includes Ethereum (ETH) which dropped below $3,000, Cardano (ADA) which dropped below $1.80, XRP which dropped below $1.50.

One of the reason for the drop is also due to the warning from several China central authorities.

The National Internet Finance Association of China, the Clearing Association of China and the China Banking Association and Payment have all warned citizens and businesses to stay clear of any financing activities related to popular cryptocurrencies. The kind of represent a change from an earlier signal given where Li Bo, the deputy governor of the People’s Bank of China (PBOC) called bitcoin an “investment alternative.”

From a China perspective, supporting cryptocurrencies is both a plus and minus. The plus – it is a good instrument to counter US Dollar which obviously, the United States has full control and leverage. The minus? Ordinary citizens in China gets overly exposed to a volatile instrument. There might be an impact on the China economy if adoption of cryptocurrencies like Bitcoin really takes flight and the value eventually tanks. There is no recourse for anyone.

Bitcoin price on 19 May 2021

Knock-on effect to crypto-related stocks and shares

It’s not just cryptocurrencies that are impacted. Crypto-related shares are also dropping. Coinbase (NASDAQ:COIN) has now dropped below its reference price of $250. That’s a steep drop considering it’s listing was less than a month ago!

At the time of writing, Coinbase shares are trading at $239, way below it’s opening high of $429.54. That represents a drop of 44.3% within a span of 1 month!

The norm, a new norm

Most already have the expectation that cryptocurrency price fluctuates and is highly volatile. Yet, it can be pretty distressing for someone new to the crypto world. The impact is further multiplied when you also hold shares like Coinbase. Such shares (e.g. Coinbase) have their price follow a close correlation to the general crypto market and fluctuates, often within a wide range. While this might be a new norm, it’s still a norm hard to swallow for many. Especially now when crypto price are coming down sharply.

A new opportunity to buy the dip?

Much like investing in stocks and shares, many would be tempted to buy the dip. For Bitcoin, there is little basis to assess if it is the right time to buy the current dip except the general understanding that:

  1. Supply of Bitcoin is limited at 21 million coins
  2. Continued adoption for the usage of cryptocurrency (including Bitcoin)
  3. The ongoing sentiments that Bitcoin is not environmental friendly and there might be a shift out from Bitcoin as a store of value or means of transaction and towards other crypto-currencies (e.g. Ethereum).

Conclusion

Bitcoin shot up in value in a rather “impossible” way over the years, with such dips being pretty common over the years.

As the first-mover, it has inherent advantages and is still THE currency since as a good store of value. The narrative will evolve in the fast-changing world within the crypto market. Which direction it heads is really a tough guess. Good idea to get a drink to calm the mind and think.

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