Several cryptocurrencies fell on April 7, which caused a crypto sell-off despite many banks and corporations jumping on the cryptocurrency bandwagon and driving the demand.
On April 6, cryptos Ethereum, Litecoin, and XRP fell more than 5 percent. The decline led to a 4 percent fall in Bitcoin's value on April 7.
The decline comes after the overall market value of cryptocurrencies doubled in the past two months to over $2 trillion. In just the last six months, Bitcoin's price has soared from $10,600 to over $61,000.
Why crypto is going down
Although the exact reasons for the decrease in crypto's value are hard to pinpoint, it coincidentally happened the same day that cryptocurrency exchange Coinbase released its 2021 first-quarter results and outlook for the rest of 2021.
In the April 6 announcement, the San Francisco-based startup reported that its revenue in the first three months of this year had grown by more than 800 percent YoY. However, the company stopped shy of providing a solid financial outlook due to too much volatility in the crypto market.
“Crypto markets have observed four major price cycles since 2010, which have typically had durations ranging from two to four years. On average, these price cycles have increased the overall crypto market capitalization significantly from the prior cycle and attracted new users into the cryptoeconomy. These cycles can be highly volatile, and as a result, we measure our performance over price cycles in lieu of quarterly results. We believe that we can create long-term value throughout these price cycles,” the company said in a press release.
Given the unpredictability of the crypto market, Coinbase officials point the three possible scenarios for 2021.
- The “high” scenario would see growth in the crypto market for the remainder of 2021.
- The “mid” scenario assumes a flat crypto market and a modest decline from the first quarter of 2021.
- The “low” scenario assumes a significant decrease in the crypto market, similar to the decline in 2018 when Bitcoin's price plunged from a high of over $19,000 to under $4,000.
“We expect meaningful growth in 2021 driven by transaction and custody revenue given the increased institutional interest in the crypto asset class. However, our institutional revenue is inherently unpredictable given the factors listed above,” the company's release stated.
Coinbase isn’t the only one that's cautious about the crypto market's volatility. In a recent Market Insider article, Bobby Lee, the co-founder and former CEO of the China-based crypto exchange BTCC, said that Bitcoin historically has periods where its value skyrockets only to crash dramatically, sometimes within just a few hours.
Buying the dip in Bitcoin
With the recent decline in Bitcoin and other cryptocurrencies, you might be wondering if now is the time to “buy the dips.” Bitcoin has reached the threshold of just over $60,000 three times, without going much over.
Although some analysts predict that it could go as high as $100,000, there's also a chance that it could rapidly lose 50 percent of its value and then fall more over the coming years, according to Lee.
Bitcoin might have reached an all-time value of $62,000 this past March, but it was under $4,000 just last year.