In the first days of 2021, Bitcoin shot above $42,000 (Dh154,266), but lost 20 per cent of its value since Image Credit: AFP

Dubai: After rising to record highs week after week during the past few months, the price of Bitcoin has been consistently falling as key global investors abruptly sold off their investment positions to cut back their losses.

The decline has forced the excitement over the colossal rise of world’s oldest cryptocurrency to take a beating, and prompt top lenders to sound the alarm of an impending crash, while hinting that the price of Bitcoin may have already peaked.

Bitcoin’s price surge loses shine

The dizzying rise that the price of Bitcoin experienced in December and early January, made many investors pin their hopes on the cryptocurrency. However, the price of the digital asset has been on a downward trend in the past couple of weeks.

The famously-volatile crypto asset logged a high and a low of $32,939 (Dh120,985) and $30,875 (Dh113,404), respectively, in the last 24 hours. However, it was last seen trading higher by 0.52 per cent at $31,768 (Dh116,684).

Bitcoin prices have slipped by 4 per cent after hitting the $35,000 (Dh128,555) level on Monday. The price of the most popular cryptocurrency fell to $30,875 (Dh113,404) and then recovered to above $32,000. Matter experts claim that many Bitcoin whales (large holders of Bitcoins) have sold off their investment positions in the cryptocurrency.

Other cryptocurrencies in the red too

Meanwhile, the second-biggest cryptocurrency in terms of market capitalisation, Ethereum, was trading marginally in the green at $1,310 (Dh4811). However, other major cryptocurrencies such as Stellar, Ripple and Tether were trading in the red.

Cryptocurrencies have come under pressure in recent weeks despite interest from big financial institutions such as BlackRock and Goldman Sachs.

In a recent survey conducted by financial services major Deutsche Bank, which surveyed 627 global market professionals during 13-15 January, respondents listed Bitcoin to be in the ‘extreme bubble’ zone – implying an impending crash and the fact that prices have already peaked.

Deutsche Bank, JP Morgan sounds alarm

On January 7, Bitcoin broke the highly-anticipated barrier price-level of $40,000 (Dh146,920), and soon it spiked to $42,000 (Dh154,266). The price surge prompted analysts at JP Morgan to project that the cryptocurrency could reach $146,000 (Dh536,260) in the long term and would compete with gold.

However, analysts at the US-based financial giant expressed doubts this week and warned that the electronic currency can be traded above $40,000 (Dh146,920) again – prompting some the world’s top investors to withdraw their investments.

JP Morgan strategists greatly lowered their expectations for Bitcoin after being faced with this scenario. According to new estimates, weak demand and the possibility of investors withdrawing their profits, prevents Bitcoin from returning to the values of two weeks ago, the analysts revealed.

Highly volatile Bitcoin is dropping again

The prices of cryptocurrencies have historically mimicked a roller-coaster ride. The price shot up by 52,000 per cent from 2011 to 2013, then plunged by more than 80 per cent over the following year.

Since then it has shot to more than 17 times its previous high, only to fall again by half. Throughout the history of the cryptocurrency, credible voices have made logical arguments that it would go "to the moon" or crash to zero.

Just a few days after crossing the $40,000-mark earlier this year, Bitcoin fell below $30,000 (Dh110,190) on January 11. Since then, the digital currency has kept oscillating between $31,000 (Dh113,863) and $35,000 (Dh128,555), with peaks of up to $39,000 (Dh143,247).

2021, a year of severe price swings

At the beginning of 2020, Bitcoin had an average price of $7,300 (Dh26,813) and closed the year at more than $29,000 (Dh106,517). That means an approximate growth of 400 per cent in 12 months.

As of early December last year, the cryptocurrency was worth about $19,000 (Dh69,787), representing a 53 per cent increase in one month. Then, in the first days of 2021, it shot above $42,000 (Dh154,266), then lost 20 per cent of its value since then.

Bitcoin has been experiencing greater liquidity depletion for years. This is partly because funds are being withdrawn from cryptocurrency exchanges, but also because cryptocurrencies are continually moving towards the 'hodlers'.

Who are ‘Hodlers’?
Hodl is slang in the cryptocurrency community for holding the cryptocurrency rather than selling it. A person who does this is known as a ‘Hodler’.

It is a term derived from a misspelling of ‘hold’ that refers to buy-and-hold strategies in the context of Bitcoin and other cryptocurrencies.

‘Hodlers’ are hard believers of Bitcoin

Hodlers wash their hands of all this volatility. They ‘hodl’, which helps them to counteract two common market declining tendencies: FOMO (fear of missing out), which can lead to buying high, and FUD (fear, uncertainty, and doubt), which can lead to selling low. The latter is occasionally referred to as ‘SODLing’.

For staunch believers in cryptocurrency, known as maximalists, HODL represents more than a strategy for reigning in FOMO, FUD, and other profit-eroding emotions or sentiments. These true believers ‘hodl’ because they think cryptocurrencies will eventually replace other currencies and form the basis of all future economic structures.

Latest data shows that around 270 thousand Bitcoins have been transferred to entities considered as savers or ‘holdlers’ in the last month.