Bitcoin fluctuates around $40,000 as Musk-fuelled rally collapses

The Elon Musk-propelled rally in bitcoin just evaporated.

The world’s largest cryptocurrency has erased all the gains it clocked up following Tesla’s Feb. 8 announcement that it would use corporate cash to buy the asset and accept it as a form of payment for its vehicles. Now traders are bracing for more pain as the token hovers around a key technical level.

Bitcoin dropped to about $40,300 as of 11.05am in London on Wednesday, a level last seen before the EV-maker disclosed its investment. It’s now down around 40 per cent from its record of almost $65,000 set in April.

Fuelling the volatility is Tesla CEO Musk himself, whose social-media utterances have whipsawed the crypto community. A statement from the People’s Bank of China on Tuesday reiterating that digital tokens can’t be used as a form of payment added to the sell-off.

Now, as Bitcoin flirts with its 200-day moving average, chart-watchers are warning of more danger ahead.

“From a technical standpoint, the indicators are flashing red,” said Ipek Ozkardeskaya, senior analyst at Swissquote in Gland, Switzerland. “The next important support level stands near $37,000, then the $30,000 mark. There is a chance that we see a pullback to these levels and even below, at least in the short run.”

Cryptocurrency-linked stocks also dropped, with Coinbase Global falling 3.4 per cent in US premarket trading and Marathon Digital Holdings slumping 7.3 per cent.

Analysts have been warning of bitcoin’s vulnerability, with recent predictions that it would fall back to $40,000. In addition to testing its 200-day moving average, other indicators — like a bearish head and shoulders pattern in bitcoin futures — may also give backers cause for worry.

Then there’s Musk.

With his often cryptic Twitter posts moving millions, the Tesla chief has become a Svengali-like character in the world of crypto. Bitcoin embarked on a multi-month rally following Tesla’s February announcement, soaring to its $64,870 peak, in large part due to the company’s embrace.

Wiped out

At the time, Tesla’s acceptance was hailed as a watershed moment for the coin, with many in the crypto world seeing it as yet another step in its evolution.

All that’s been wiped out after Musk sent investors into a tizzy following a mass of head-spinning tweets that started last week when he criticised bitcoin’s energy use.

Tesla would suspend car purchases using the token, he announced, calling recent energy-consumption trends “insane.” Over the weekend, after insinuating his EV company might have sold its bitcoin holdings, he sent out tweets clarifying that it hadn’t. All of which had traders scrambling.

“Realistically, it is not the first time Elon Musk’s tweets have been erratic and, frankly, wrong,” said Ulrik Lykke, executive director at crypto hedge fund ARK36. “The crypto markets are extremely emotionally driven and their participants are prone to overreacting to events they perceive as negative.”