Bitcoin drops below $40,000 – All you need to know about how and why

Tesla Founder Elon Musk’s views on Bitcoin have however been moving prices for the crypto over the past one month.(Image Source: Reuters)

Arguably the most popular digital currency among the current crop of cryptocurrencies, the price of Bitcoin has considerably nosedived over the past months due to expected (regulatory hurdles) and unexpected (one tweet-happy Elon Musk) reasons.

As per latest data on Coinbase around 11.30 am, Bitcoin was at $38,570.90 on May 19. This is its lowest level since February 2021 and comes just after hitting a peak of $64,895 last month.

And while Elon Musk’s on-again-off-again approach towards certain digital currencies has resulted in massive sway, the latest blow came from China’s new ban on crypto transactions.

Here’s all you need to know about the factors pressuring Bitcoin prices:

- China ban on crypto transactions: China has banned financial and payment institutions, including banks and online payment platforms, from providing cryptocurrency related services and “warned investors against speculative crypto trading”, Reuters reported on May 19.

The ban includes stopping services such as clearing and settlements, trading and even registration for cryptocurrencies.

In a joint statement on May 19, three industry bodies– the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China, said cryptocurrencies nature of speculative trading is “seriously infringing on the safety of people's property and disrupting the normal economic and financial order”.

This is just the latest restriction on digital currencies as China previously shut crypto exchanges in 2017 and in 2019 said it will “block all access” to domestic and foreign exchange websites.

- ‘Buy-and-dip’ mentality will see investors migrate: A Business Insider report noted that Bitcoin option traders foresee a price drop below $40,000 by June 2021.

An exchange CEO told the publication that “there was little sign of buy-the-dip mentality among Bitcoin traders and investors appeared to be a lot more pessimistic this time around”.

Data on Skew on May 18 showed that around $3.5 billion worth option contracts flowed towards bearish options, it added.

Other executives told BI that they expect Bitcoin to remain “range-bound” between $35,000 and $50,000 until June, based on options movements.

- Elon Musk single-handedly triggering fluctuation in interest: Bitcoin’s latest dive downwards was majorly propelled by Tesla and SpaceX founder Elon Musk's late realisation that cryptocurrencies are "energy intensive" i.e. – not environment friendly.

Musk invited much ire from crypto fans for his particular views and thus reviewed outlook on Bitcoin due to its carbon emissions.

"Energy usage trend over past few months is insane," Musk tweeted on Thursday. As per AFP, he shared a chart from the Cambridge Bitcoin Electricity Consumption Index (CBECI) to support his thought.

Obtaining Bitcoin is an energy intensive endeavour, and the chart showed the evolution of its power usage, rising constantly from 2016 and accelerating sharply in 2020 on an annualized basis to hit its current level of 149 terawatt-hours (TWh), an all-time high, AFP noted.

Taking into account the energy consumption by Bitcoin miners Musk also said that Tesla would no longer accept the cryptocurrency as means of payment for its electric cars. The news dropped Tesla price as well, leading to Musk losing his spot as the second richest man in the world.

Musk’s views on Bitcoin have however been moving prices for the crypto over the past one month.

Musk’s recent Twitter interactions also shot off speculation that Tesla may sell off all of its Bitcoin holdings – causing a flash crash on May 18. He later tried to put the rumours to rest saying that the company hadn't sold any holdings, which buoyed prices, but investors were left fuming at the lack of maverick CEO's online stances.

In fact, Bitcoin dropped over 8 percent to $45,000 on May 18 after Twitter user CryptoWhale said, "Bitcoiners are going to slap themselves next quarter when they find out Tesla dumped the rest of their holdings. With the amount of hate @elonmusk is getting, I wouldn’t blame him…" to which Musk replied, "Indeed."