The bitcoin market mood momentarily flipped bearish following the latest spot market sell-off that saw the digital asset fall by 13% on Thursday night. The crash drove BTC prices to $28,845 by Friday morning, the lowest level since Jan 4, 2021.
Crypto investors feared that the coin was set for its biggest one-week fall since declining by 12% in Sep 2020, but bulls stepped in to prevent any further downsides.
As of this article’s writing, BTCUSD has recovered to $31,780, but it is still down about 14% in the weekly chart.
BTCUSD Chart By TradingView
Many investors speculate that the world’s largest cryptocurrency came under immense selling pressure following remarks from Janet Yellen, the incoming head at the US Treasury Department.
Speaking at her virtual confirmation hearing on Jan 20, Joe Biden’s pick for Treasury secretary suggested that crypto should be curtailed due to its role in terrorist financing.
Yellen followed up her criticism with positive remarks at a US Senate hearing held on Jan 22, clarifying that crypto has the potential to empower the existing financial system.
However, fear, uncertainty, and doubt (FUD) had already gripped the market due to her earlier comments, partly resulting in the nasty Thursday night sell-off.
‘Double Spend’ Vulnerability Spooks Investors
Besides the bearish remarks from a top Treasury Department official, another factor may have spooked traders in the lead-up to Thursday’s sell-off.
Many in the crypto space put bitcoin’s overnight slip down to BitMEX Research reports that exposed a dreaded “double-spend” on the BTC network. The security vulnerability allows users to spend the same coin twice on the blockchain and can lead to catastrophic losses for traders.
BitMEX later eased investors’ fears by clarifying that the vulnerability wasn’t a double-spend but another less worrying transaction. Nevertheless, many BTC holders had already offloaded their coins by then.
Bitcoin May Be Down But Not Out
BTC has taken a beating over the past few days, but the king coin is still up 6% on a year-to-date basis. As such, there are many reasons for traders to remain optimistic over its long-term prospects.
Jehan Chu, managing partner at crypto investment firm Kenetic Capital, believes that the BTC price will soon see a bullish reversal, and the current shakeout is normal.
“Veteran investors in Asia are holding strong and taking the opportunity to stack higher. The history of bitcoin is littered with such shakeouts, and we expect a whipsaw reversal to $50,000 in short order,” Chu asserted.
Bitcoin’s prospects of a fresh rally were further buoyed by yesterday’s announcement that MicroStrategy had bought the dip, adding approximately 314 coins to their bitcoin treasury.
