Bitcoin managed to recover from a six-day losing streak today as some traders took the opportunity to buy the dip.
Yesterday, Bitcoin lost ground for the fifth consecutive day, losing 2.09% against the US dollar, closing the session at the 49,116.3 level, and hitting a seven-week low.
Many believe that Bitcoin was just going through a correction phase, especially after it gained so much ground in the last couple of months. Last month, the cryptocurrency gained 29.79% against the US dollar, after going up by 36.69% in the previous month, and continuing with a six-month gaining streak.
Bitcoin had been gaining popularity mostly due to institutional adoption and crypto investing becoming more mainstream and popular among retail investors. The idea that cryptocurrencies can be used as a hedge against inflation has also helped to boost the popularity of those assets, especially now that the US government is implementing one of the most ambitious stimulus plans in the history of the United States.
The current turbulence in the markets is attributed to a rumor that has spread recently. Apparently, President Joe Biden is considering raising the capital gains tax, particularly gains on cryptocurrency and other investments. The rumor has not been confirmed by the Treasury Department, though it has had a lot of influence recently.
Some analysts expect Bitcoin to continue recovering and regain lost ground. Some even suggest that it will keep appreciating until it reaches the 80.000 level.
“Going forward, Bitcoin liquidity should remain robust and resilient; depth on major exchanges has continued to drop less and recover faster than other asset classes,” commented an analyst at JPMorgan.
Not everyone is optimistic about the future of Bitcoin. Some imply that the markets will continue to suffer from extreme volatility and disregard the idea that eventually Bitcoin will compete with traditional fiat currencies, highlighting that it already fails as a medium of exchange and as a store of value.
Some countries have expressed their intention to restrict the mining, exchange and holding of cryptocurrencies, though this probably won't have a meaningful impact in terms of adoption, since cryptocurrencies are decentralized. In India, the Ministry of Corporate Affairs recently circulated a draft bill that would effectively ban them, and that included regulations for an official digital currency, though it hasn't been introduced into the parliament yet.
By 11:11 GMT, Bitcoin gained 8.19% against the US dollar, hitting the 53,551.0 level.