Cryptos Recover Sharply After Weekend's Turmoil

Over the weekend, billionaire Elon Musk said he discussed with Bitcoin miners in North America to indicate support for what he says is an effort by miners to make their operations greener.

Musk tweeted that he held a call with North American miners on Sunday to discuss energy usage transparency.

Michael Saylor, another long-time Bitcoin booster, also tweeted the same, saying they had a call with miners including Michael Novogratz's Galaxy Digital and publicly traded Hut 8 Mining Corp, to discuss "energy usage transparency."

Major cryptocurrencies have recovered sharply following their comments.

Bitcoin gained as much as 19% to trade around US$39,000. Over the weekend, it had slumped to as low as US$31,132.

Bitcoin Saga: What's Behind the Recent Turmoil in Prices?

The world's largest cryptocurrency has been under pressure recently as China cracks down on mining and trading activities.

According to reports, mining is big business in China and accounts for as much as 70% of the world's crypto supply.

Bitcoin slid on Friday last week after China doubled down on its efforts to prevent speculative and financial risks by cracking down on mining and trading of cryptocurrencies.

This statement came days after three Chinese industry bodies tightened a ban on banks and payment companies providing crypto-related services.

Under the China crypto ban, institutions including banks and online payments channels must not offer clients any service involving cryptocurrency, such as registration, trading, clearing, and settlement.

In a statement, the three industry bodies said:

• Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people's property and disrupting the normal economic and financial order.

However, it must be noted that China has only banned crypto exchanges and initial coin offerings (ICOs). It has not barred individuals from holding cryptocurrencies.

The China ban is not all that's affecting Bitcoin prices.

Two weeks ago, Elon Musk had announced that Tesla wouldn't accept Bitcoin for cars because of its energy-intensive proof-of-transaction process.

Musk's tweet had sent Bitcoin tumbling the most in years, wiping more than US$500 bn from its market value.

He later tweeted that he still believed in Bitcoin, helping the token recoup some of its losses.

Not the First Time China has Raised Questions

The above moves by China are the first of many in the list.

In 2017, China shut down its local cryptocurrency exchanges, smothering a speculative market that had accounted for 90% of global bitcoin trading.

In June 2019, the People's Bank of China issued a statement saying it would block access to all domestic and foreign cryptocurrency exchanges and ICO websites, aiming to clamp down on all cryptocurrency trading with a ban on foreign exchanges.

Prominent Hedge Fund Billionaire: "I Have Some Bitcoin"

Founder of Bridgewater Associates, Ray Dalio yesterday said he would rather own Bitcoin than a bond.

Should cryptocurrencies continue to gain traction, investors might decide to invest in them rather than government bonds, Dalio said in a recorded interview that was presented Monday at CoinDesk's Consensus 2021 conference.

Dalio has been bearish bonds for some time, saying in March that the economics of investing in bonds "has become stupid" because they pay less than inflation.

Dalio also said that he owns some Bitcoin. He didn't say how much he owned.

Equitymaster on Cryptos

We at Equitymaster have been cautious when it comes to cryptos.

Earlier this month, Richa published the monthly Phase One Digest (requires subscription).

She wrote about the US$2 trillion asset class - Cryptos - and why you should be wary of it.

Here's an excerpt from the premium editorial:

• More people are prone to gamble all this money away on whatever meme, stock or asset catches their fancy.
  
  They might earn profits in the short term, but eventually they will learn.
  
  We will keep dodging such kind of multibagger bets and the temptations they bring along.
  
  Instead, we will maintain our focus and refine our research process further on...

Meanwhile, Aditya Vora had pointed out in his recent editorial that crypto trading is certainly not confined to young people.

You can read his editorial here: Invest in Cryptos at Your Own Risk.

Also, last month, our chartist Brijesh Bhatia had recorded a video into the price action of bitcoin.

Is it a bubble? Can the rally sustain? How high can the prices go?

Brijesh shared his views on these questions and more in the video below.

Nursing Wounds: How Are Major Cryptos Performing Today?

Cryptos recovered today, clawing back ground after a bout of weekend selling.

Bitcoin climbed as high as US$39,988 while other coins also followed suit.

Though the largest crypto bounced back after Sunday's plunge, it's struggling to cross the psychological figure of US$40,000.

At the time of writing, Bitcoin was trading at US$38,244.

Second-largest cryptocurrency Ether jumped more than 20% to as high as US$2,753, erasing Sunday's losses that pushed it to near a two-month low around US$1,730.

Ethereum gained the most among all cryptocurrencies. Despite the sharp rise, it has fallen by almost half from a peak it hit earlier this month.

At the time of writing, it was trading at US$2,570.

Other popular cryptocurrencies - Ripple, Cardano, Dogecoin, Chainlink, and Litecoin have also recovered sharply after Sunday's plunge.

Note that the market value of more than 7,000 coins tracked by CoinGecko is down about US$800 bn from a May peak of some US$2.6 trillion.

The cryptocurrency market had lost about 60% of the total market-cap in the past one week, with the top two digital tokens Bitcoin & Ethereum giving up significant gains from their all-time highs.

Despite today's recovery, Bitcoin is about US$24,000 off its mid-April record.

The US Federal Reserve had moderated investors' fears about rising interest rates due to inflation, which has in turn improved sentiment.

At present, cryptos are witnessing wild swings, resulting in heavy losses or sharp recoveries. Bitcoin investors will closely track its price action for the coming days.

Resources from Equitymaster on Bitcoin

Here are links to some very insightful Equitymaster articles and videos on Bitcoin.

• 2021: The Year of Bitcoin
• Don't Let the Crypto Bears Inside Your Head
• This is Why the Crypto Correction is a Good Thing
• Bitcoins and Scandals! Can they Make for Great Investments?
• Will Bitcoins Be Your Rs 20 crore Lottery Phone Call?
• Will Bitcoins Put Paper Money to Shame?
• Bitcoin Beginners Should Do These Three Things...
• What Bitcoins Have in Common with Value Investing

Happy Investing!