This week, the world's most popular digital currency has dropped 18%. Since then, the world's largest cryptocurrency has recovered slightly, trading at $38,093 at the time of writing, down about 7.35 percent in the previous 24 hours. Despite the market's ongoing bloodbath, BTC is still up nearly 300% over the last year, trading at mid-January levels.
Bitcoin and ether, the two most popular digital currencies, dropped as much as 30% and 45 percent, respectively, but recovered quickly after two of their most ardent supporters, Tesla Inc (TSLA.O) CEO Elon Musk and Ark Invest's Chief Executive Cathie Wood, expressed support for bitcoin.
The drop was sparked by a number of factors, including Elon Musk, Tether, and US control.
What's the story behind the drop? Some might argue that the market got too close to the sun as investors poured money into risky and technically unremarkable projects like Dogecoin.
Probable reasons for Bitcoin crash:
Elon Musk tweet on bitcoin
It's difficult to determine the exact cause of the price drop, but Elon Musk's comments about Bitcoin mining coal use are likely to have played a part.
Tether Holdings Limited, on the other hand, had until May 19 to send a breakdown of Tether's (USDT) reserves to the Office of the New York Attorney General.
US Regulations on Bitcoin
Regulatory uncertainty was brought to light earlier this month when US Treasury Secretary Janet Yellen and Securities and Exchange Commission Chair Gary Gensler shared their doubts about the cryptocurrency market, according to Cointelegraph.
China's ban on Crypto
On May 18, the People's Bank of China's banking and trade association released a statement titled "Preventing the Possibility of Virtual Currency Transaction Speculation." It then urged member institutions to follow existing regulatory rules governing digital currencies. Not only will this decrease the demand for cryptocurrencies and cast doubt on the idea that they are global assets, but most Bitcoin mining takes place in China, further complicating the industry's future.
JP Morgan Chase statement
JPMorgan Chase analysts suggested that major institutional investors are now selling Bitcoin (BTC) in favour of gold, as the cryptocurrency hit five-month lows near $30,000. JPMorgan indicated that institutional investors are returning to gold in a Tuesday note to clients, reversing a big bullish cryptocurrency market activity that pushed Bitcoin's price above $64,000 in mid-April.
Should you buy on Dips?
It's almost impossible to time the market and buy on the dip as a new investor. However, if you've already done your homework and decided to purchase Bitcoin, now is a good time to do so. Investments in cryptocurrencies are risky and unproven. As a consequence, higher returns are possible, but there is also a higher risk. Don't bring money into Bitcoin from your emergency fund or your savings account. That's money you could use to cover a financial emergency or to live more comfortably in retirement.