Bitcoin steadied after dropping further from its November all-time high as the prospect of reduced central bank stimulus hurts speculative demand for cryptocurrencies.
The digital asset traded at $46,435 on Tuesday following a 6.3 per cent drop a day earlier. A wide range of other tokens such as Ether, Solana and Dogecoin were also nursing losses.
Virtual coins have struggled lately along with other speculative investments like meme stocks, in part as the Federal Reserve and central banks elsewhere scale back the tide of pandemic-era liquidity that lifted a variety of markets.
Bitcoin has retreated more than 30 per cent from an all-time high of almost $69,000 on November 10. Proponents argue the drop is temporary because retail and institutional buyers are increasingly dipping into crypto investments.
"These once liquidity beneficiaries are the canary in the coal mine and what the Fed giveth, they are now gearing to take away," Chris Weston, head of research with Pepperstone Financial Pty Ltd., wrote in a note. But he added that "crypto has the added tailwind from the adoption story."
The world's largest cryptocurrency is still up about 60 per cent so far in 2021, exceeding the returns from traditional assets like global stocks, commodities and gold. But its big swings have dented contentious narratives that frame Bitcoin as a store of value and an inflation hedge.
"The idea that as it matured, the volatility would ease has not really materialised," said Marc Chandler, chief market strategist at Bannockburn Global Forex. "The volatility is deadly and its other supposed attributes, like a hedge against inflation, seems spurious."
Bitcoin is now testing support levels monitored by technical analysts. These include a jab at the token's 55-week moving average. It's already broken below a trendline drawn from the beginnings of its surge during the pandemic.
"After any large move down, the market takes time to establish a base and that is what we're seeing," said Vijay Ayyar, head of Asia Pacific with crypto exchange Luno in Singapore.
