By Friday, bitcoin had rebounded slightly, to around $37,000 — bruised by continued regulatory concerns, and far off its all time high above $64,000 that it hit a month ago.
This week, a combination of factors, including government warnings about increased regulation and tweets from influential market mover Elon Musk, added fuel to an already jittery market.
The crypto market had been especially shaky for about a week before the crash on Wednesday.
The threat of increased regulation triggered a panic, and bitcoin plunged before rebounding slightly and leveling off. Other cryptocurrencies also tanked: Ethereum fell more than 40%, while dogecoin and binance lost around 30%.
By Thursday, bitcoin had recouped some losses and was back above $41,000. But a Friday statement from Chinese officials reiterating the need to crack down on cryptos beat bitcoin back down. It was trading around $37,000 on Friday afternoon. Other cryptos were also in the red.
China has long had limits around crypto trading within its borders. Officials declared in 2013 that bitcoin was not a real currency and banned financial and payment institutions from using it. Individuals can hold or trade cryptocurrencies, but major exchanges in mainland China have been shut down.
And it’s not just China. On Thursday, Federal Reserve Chairman Jerome Powell warned about potential risks cryptocurrencies pose to the financial system. Powell also said the central bank would publish a paper this summer that will explore the implications of the US government developing a digital currency of its own.
The Treasury Department is also turning its attention to the crypto space. On Thursday officials said any transfer of digital currency valued at $10,000 or more must be reported to the Internal Revenue Service.
“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the Treasury said in a statement. “Despite constituting a relatively small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade, especially in the presence of a broad-based financial account reporting regime.”
The future of cryptos
The week’s wild swings were a test for cryptocurrency fans. True believers tend to take the long view: At the start of 2020, bitcoin was trading around $7,000 a coin, which means it’s still up more than 400% in that time, even after crashing this week.
“We’ve had at least three of these big crypto bubbles so far,” he said. “And often enough, the reason the bubbles end up stopping is because some event happens that just makes it clear that the technology isn’t there yet.”
Laura He, Michelle Toh, Anneken Tappe, Paul R. La Monica and Matt Egan contributed to this report.