Bitcoin is in a slump, thanks to a widened Chinese clampdown on mining the world's top cryptocurrency over the weekend.
Its crash on Monday led to an extended decline on Tuesday momentarily, sending Bitcoin below a symbolic price threshold of $30,000. It also reignited fears of a chilly and gruesome crypto winter as other coins such as Ethereum and Dogecoin experienced steep slides.
But in an interview with CNBC, experts remain confident that Bitcoin and Ethereum will weather this storm, owing to its strong fundamentals and that the market conditions in 2021 is quite different from what transpired during the last crypto crash in 2018.
Bitcoin Value: 'Far From a Bear Market'
Respected on-chain analyst and statistician Willy Woo assured investors that despite the unfortunate developments, Bitcoin is "far from a bear market." Woo said the dismal sentiment is a result of traders "freaking out over technical seen on exchanges like volumes and price action."
After its surge in the last 12 months, peaking at $63,000 in April, Bitcoin took sharp falls in the last two months. China's crackdown led to its worst decline, dropping below $33,000 a coin on Monday.
Beijing officials shut power stations running Bitcoin mining operations in Sichuan, halting 90 percent of Bitcoin production, Forbes quoted Chinese state media Global Times as saying. The disruption decreased Bitcoin's hashrate or the computational power in mining and processing Bitcoin transactions.
China's State Council, in a Reuters report, vowed to shut down cryptocurrency mining and trading to manage financial risks.
China has accounted for 80 percent of global Bitcoin operations, Forbes further reported while citing a 2020 study showing Sichuan as the second most intensive mining region. China has been a choice location for Bitcoin mining due to cheap electricity.
The downward trend, as analyst Jason Deane of Quantum Economics said in the CNBC report, "has been ascribed to China's latest moves with mining that have led to a lower global hashrate." While this uncertainty could frighten short-term investors, Deane said that for Bitcoin investors, "this is an extremely positive move" for the blockchain.
CNBC said a "Fear and Creed Index" bore a reading of 10, indicating "extreme fear," which Deane said reflects the market sentiment at present.
Bitcoin, Ethereum Value: Market Far from a 'Crypto Winter'
Supporting Woo's view that the market is far from bearish, Deane also assured investors that a crypto winter is highly unlikely. According to him, the current sentiment would indicate that the market is headed for "a period of overreaction" but this "will correct itself in due course."
Matt Greenspan, portfolio manager at Quantum Economics, agreed in the CNBC report and emphasizing that the market "will never see another crypto winter again." This is because cryptocurrencies have "more utility, adoption, and diversification in the industry than in 2014 or 2018."
Bitcoin's fundamentals, bullish investors insist, are much stronger this year than its last bearish outcome in 2018. The coin has weathered many storms due to the fundamental network, stability and security it has established. With that, it should bring confidence to the market amid the continuing decline.
The same confidence should also be felt by long-term Ethereum investors, given the blockchain's massive use cases, particularly decentralized finance (DeFi) apps and the trade of non-fungible tokens (NFTs). Not to mention its ongoing upgrade to improve transaction efficiency and security.
Bitcoin is also undergoing its first major upgrade in four years, with added functionality, privacy and efficiency reinforcing the confidence in the cryptocurrency. Because of this, Bitcoin advocates also predict prices that will end up higher than previous levels in the short-term.