Bitcoin climbs above $40,000 as crypto market reels from sell-off

Bitcoin, Dogecoin and Ethereum physical commemorative coins are displayed in Yichang, Hubei Province, China. Photo: Costfoto/Barcroft Media via Getty Images

The price of bitcoin (BTC-USD) recovered overnight to return to $40,000 (£28,329), following a sharp sell-off across the market that shook confidence.

Bitcoin dropped as low as $32,000 on Wednesday as selling gripped the cryptocurrency market. News of a renewed crackdown in China was blamed but prices had been under pressure since Elon Musk said Tesla was abandoning plans to accept bitcoin as payment last week.

The broader crypto market sunk as much as 20% on Wednesday. Data from CoinMarketCap.com showed the market was down around 5% over the last 24 hours by 8.15am on Thursday in London.

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"Bitcoin, the biggest crypto-asset, shed as much as 25% yesterday, while Ethereum, the second largest, tumbled as much as 40%," said Michael Brown, a senior market analyst at Caxton. "Even accounting for the heightened volatility which comes with this territory, these are sizeable moves."

Genesis, a crypto prime broker and the world’s largest institutional digital currency lender, said the sell-off appeared to be partly driven by forced closures of positions based on leverage. Trading desks reported cash buyers for ethereum coming into the market as the price fell to the mid-$2,000s and renewed appetite among institutional investors for bitcoin as it reached $35,000.

Bitcoin was up 2.6% to $40,428 by 8.25am in London on Thursday morning. Bitcoin's fightback: The world's biggest cryptocurrency has recovered from lows reached on Wednesday afternoon. Photo: Yahoo Finance UK

Ethereum (ETH-USD) was down 6.8% to $2,722 but off the lows seen in mid-afternoon trade on Wednesday when it fell below $2,000. Dogecoin (DOGE-USD), another Musk favourite, was down 8% to $0.37 but also off lows seen in the prior session.

Wednesday's sell-off once again highlighted the extreme volatility that characterises the cryptocurrency markets. Unlike with past corrections, analysts said this week's slump had more consequences for the mainstream financial system and traditional companies.

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Several institutions have invested billions of dollars into cryptocurrencies, including Tesla (TSLA) and MicroStrategy (MSTR). Traditional financial firms like PayPal (PYPL) and Goldman Sachs (GS) have also begun handling the asset on behalf of clients, leaving them with potential exposure.

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"Typically, moves in the crypto arena are rather isolated," said Brown. "Yesterday, though, was different, with the sell-off in the crypto arena sparking some notable risk aversion elsewhere.

"This was particularly evident among those companies which have been major advocates of crypto, with the price of stocks such as Tesla, Coinbase and Microstrategy tumbling. There was also a broader negative impact on the tech sector at large, which led losses on Wall St yesterday.

"This ripple effect seems to be a strong illustration of how large crypto markets have become. The correlation between these assets is, at least intraday, fairly clear to see."

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