Bitcoin plunges 17% as record-shattering rally succumbs to valuation fears | Currency News | Financial and Business News

Bitcoin Bubble

Bitcoin tumbled as much as 17% on Monday to below $48,000.

The drop comes a day after the cryptocurrency hit a new record of $58,042 on Sunday, for a gain of over 100% year-to-date. The cryptocurrency on Friday reached a market capitalization of $1 trillion for the first time.

Monday’s slide is a sign of wariness of the cryptocurrency’s rapid ascent. Bears have long said bitcoin is in bubble territory, comparing the recent rally to what played out in 2017, when bitcoin plunged 45% shortly after reaching new highs. 

Will Hobbs, the CIO of Barclays Wealth & Investments, told Insider that he was steering clear of the cryptocurrency due to its wild swings, a view shared by many money managers.

Meanwhile, the last few weeks have seen bitcoin gain additional institutional support, from Tesla to Mastercard, among others.

MicroStrategy, the first corporation to directly purchase bitcoin, now owns 70,784 bitcoin, roughly worth more than $3.5 billion. Chief executive of the enterprise software company, Michael Saylor, has long been an advocate of bitcoin, viewing the cryptocurrency as a hedge against a potential devaluation of the US dollar. 

On Sunday, Saylor fired a tweet to his half a million followers: “It is only speculation if you don’t understand the technology or why you need it. #Bitcoin

As for Tesla, an equity analyst at Wedbush Securities estimates that the electric car maker has racked up paper profits worth $1 billion on its $1.5 billion bitcoin investment.

“Based on our calculations, we estimate that Tesla so far has made roughly $1 billion of profit over the last month from its Bitcoin investment given the skyrocketing price of Bitcoin, which now tops a trillion of market value,” analyst Dan Ives wrote in a note published Saturday.

Tesla CEO Elon Musk has been a vocal supporter of the cryptocurrency, most recently saying it’s a “less dumb form of liquidity than cash.” On Saturday, however, Musk did admit that the price of bitcoin “seems high.” 

Many believe the dizzying rally of the cryptocurrency in recent weeks could have been driven by a couple of things: buyers looking to hedge against inflation or simply by individuals trading the cryptocurrency.

Still, some bitcoin bulls have told Insider they expect the cryptocurrency to rise even further, as high as $250,000 in the next three years.

Read more: Bank of America says buy these 14 cheap stocks that are best positioned to soar on the strongest economic comeback in nearly 40 years

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