LONDON/TOKYO: Bitcoin rose nearly 10% in a recovery rally that pushed it back above $40,000 on Thursday, a day after a brutal sell-off on concerns over tighter regulation in China and unease over the extent of leveraged positions among investors sank the world’s biggest cryptocurrency to its lowest level since late January.
Thursday’s gains brought bitcoin back to near $41,600, or approximately where it traded in early February. Smaller rival ether was up 12% at $2,935 after its 28% tumble.
The rally came after prominent crypto backers such as Ark Invest’s Cathie Wood and carmaker Tesla’s Elon Musk indicated their support on Wednesday.
Wednesday’s declines in both digital assets were one of their biggest daily percentage moves in more than a year, with investors rushing to exit trades that until recently were outperforming traditional markets such as stocks and bonds.
Wednesday’s volatility fuelled record turnover. Data from CME showed volumes on bitcoin futures soared to 32,356 contracts, more than three times the average volumes for May.
While turnover on Thursday declined from the frenzied volumes seen overnight, May contracts still showed more than 6,000 contracts traded. Similar trends were observed on CME’s micro bitcoin futures where nearly 95,000 contracts were traded on Wednesday.
The catalyst was a statement by Chinese financial industry bodies banning the use of cryptocurrencies in payment and settlement. China also prohibited institutions from providing crypto-related products or exchange services between cryptocurrencies and the yuan or foreign currencies.
Bitcoin had been under pressure after a series of tweets last week by Musk, a major cryptocurrency backer, chiefly his reversal on Tesla accepting bitcoin as payment.
The slide forced some investors to close out leveraged positions in cryptocurrency derivatives, which caused prices to fall further, traders said.
Still, some analysts saw Thursday’s gains as a sign that investor sentiment remains bullish.
Ether is still up more than 270% so far this year, however, outperforming bitcoin’s year-to-date gain of 37%.