Bitcoin Price Recovers But Analysts Forecast Another Decline

The dramatic decline in bitcoin’s price has changed into an upward trajectory today. 

The cryptocurrency, which crashed by more than 50% yesterday, reversed course last evening and is trading for $11,755.13, up by 5.5% from its price a day earlier, at 14:25 UTC. That figure is also a climb of 27.7% from its low of $9,200 less than 24 hours ago.

Other cryptocurrencies copied bitcoin’s price movement. With a gain of 47.76%, Ripple - a cryptocurrency which is down from its highs at the end of last year - was the biggest mover among the top 10 most traded coins.

Ripple counterpart Stellar also racked up a 42.47% increase in its price. All other currencies within the top 10 were flashed green and double-digit increases, as of this writing.  

The overall market capitalization for cryptocurrencies, which had dipped to $414.8 billion yesterday, was back up. At 14:30 UTC, it was $579.6 billion. It crossed the $600 billion market cap for the first time in Dec. 2017. 

The First Bitcoin Futures Contract Settlement 

The first bitcoin futures contract settled at $10,900 per bitcoin yesterday. That number is not far from bitcoin’s price in the spot exchange markets. According to Ed Tilly, CEO at CBOE, the settlement worked as designed and the process had a “smooth operational” close.

Futures contracts were expected to bring liquidity and institutional investors to bitcoin markets. But trading volumes and participants in the markets have been fairly low as compared to spot markets. As a result, futures prices have mimicked spot prices instead of vice versa.

Over at CNBC, Bob Pisani wrote that a series of smooth closes for futures contracts over the next couple of months will aid in the introduction of bitcoin options.  (See also: Four Problems With Bitcoin Futures.)      

What Caused The Crash In Cryptocurrency Markets?  

As with most things bitcoin, the reason for a plunge in market valuations is still a mystery. According to some reports, the threat of a government crackdown caused a panicked selloff among traders. Others point to a decline in trading volumes from South Korea and China as a reason. (Incidentally, exchanges based in Asia accounted for a majority of bitcoin trades this morning).

The closing down of Bitconnect, an exchange that was criticized by prominent members of the bitcoin community earlier, for more than 24 hours is also being held up as a reason for the change in traders outlook regarding cryptocurrencies. But that might be a red herring since volumes at BitConnect are a fraction of overall cryptocurrency trading numbers.

 “We get selloffs like this fairly regularly,” said Joe Van Heck, managing partner at Grace Hall trading. “Great time to evaluate which of these coins have staying power, actually have utility going forward, and invest in those.”    

New Price Predictions Forecast Further Decline 

In the meanwhile, banks are coming out with new price predictions for bitcoin that indicate the bloodbath may not be over yet. According to analysts at Citibank, bitcoin could lose as much as 50 percent more from its lows yesterday soon. They have forecast a range of between $5,605 to $5,673 for the cryptocurrency’s price based on technical factors. The price move “looks very likely to be very speedy”, they wrote

Credit Suisse has a similar take on bitcoin prices and their estimate of bitcoin’s price pegs its value at $6,000. Their model uses a negative correlation with the yield on BBB rated US government bonds for its forecast.

“In the extreme, this could imply that leverage has been used to fund Bitcoin investments through time,” said Damien Booey, analyst with the bank. “Alternatively, it could simply mean that bitcoin’s valuation is highly sensitive to whatever has driven credit spreads over the past few years (example, quantitative easing from central banks).” 

Gold Becomes Attractive 

The crash in bitcoin, which is often referred to as the “digital gold”, has made physical gold attractive. CoinInvest, a London-based company that enables gold purchase with bitcoins, reportedly sold 30 kilograms of gold worth $1.2 million in the spot market after bitcoin dropped 23 percent on Tuesday. Gold prices on the spot and futures markets have risen marginally in the last couple of days. (See also: Should You Buy Gold Or Bitcoin?) 

Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin.

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