by AFIQ AZIZ / pic by BLOOMBERG

BITCOIN prices would continue on a correction path in the near term after a hard fall amid China’s crackdown on digital currencies.

CoinGecko COO Bobby Ong said the cryptocurrency market has threaded through a very frothy territory for the past few weeks with digital coins’ prices, including bitcoin, going up too high and too fast.

As such, he said the market was searching for “a reason to decline”. “Tesla Inc CEO Elon Musk’s tweet that Tesla was no longer going to accept bitcoin, coupled with the news on China banning financial institutions from dealing with crypto businesses were the major catalysts causing the prices downfall,” Ong told The Malaysian Reserve.

Still, he said the major cause of the huge price dips was leveraged traders on exchanges getting liquidated and triggered other investors.

“This led to other leveraged traders being liquidated, too. There was too much leverage being used in the market and this was a much-needed wipeout to bring it to a ‘healthy level’ again,” he said.

Ong said no fixed formula or time could tell when leveraged traders would liquidate, but, usually, it coincides with negative news.

At present, he said narratives from Musk and China’s stern measures in banning financial institutions from crypto transactions were the two major downward movers.

Bitcoin’s high volatility went south in the weekend after a fresh warning from Beijing to stem cryptocurrencies.

Bitcoin, the leading digital currency, fell as much as 15% yesterday to as low as US$35,222 (RM138,930), compared to US$41,700 last Friday, according to Coingecko.com data.

The digital coin almost hit US$30,000 earlier in the week, after ending May 14 at US$49,100.

The latest blow came when China’s State Council reiterated its call to curtail bitcoin mining and trading, amid the crypto market already rattled earlier in the week by forced selling and possible US tax consequences.

Market observers viewed that China’s moves last week highlighted the country’s continued desire to seek control over the notoriously volatile asset class.

“It’s not really the mining issue that is the problem.

“They say they’re doing this as part of an effort to control risk-taking in their markets, but it’s really a signal that China is not going to be a big market for cryptos unless it’s a People’s Bank of China-controlled one,” Miller Tabak + Co chief market strategist Matt Maley said as reported by Bloomberg.

The pullbacks last Thursday followed the news that the US might require crypto transactions of US$10,000 or more to be reported to tax authorities.

Fundamentally, Ong said nothing has changed for both two major digital coins, bitcoin and ethereum, the second-largest coin by market capitalisation.

“But, it is just the price that has gone down. There are a lot of developments being planned for ethereum this year as it moves towards ethereum 2.0,” he added.

Ethereum price fell 37.5% in the last seven days to US$2,284 yesterday.

Ethereum 2.0, also known as serenity or ETH 2, is an upgrade to ethereum on a number of levels.

Its primary objective is to increase ethereum’s capacity for transactions, reduce fees and make the network more sustainable.