Bitcoin hovers around $40,000 as cryptos bounce back from rout

Bitcoin rallied back to the $40,000 level as cryptocurrencies recover some of the ground lost in this month’s volatile rout.

The largest digital token climbed as high as $40,866 before trimming some of the gain to $39,600 as of 7.08am in New York. The Bloomberg Galaxy Crypto Index advanced 9 per cent as rivals like Ether also climbed. The gauge had one of its worst stretches ever last week.

Virtual currencies have swung wildly in recent days after billionaire Elon Musk sparked a selloff by criticising bitcoin’s energy consumption and said Tesla was suspending payments using the token. Tough regulatory rhetoric on cryptocurrencies from China exacerbated the moves, which saw leveraged investors unwind positions.

As digital coins claw back losses, some cryptocurrency adherents are taking the latest swings in stride.

“Bitcoin is infamously volatile — it’s a known feature of the system,” Nic Carter of Castle Island Management said in an interview on Bloomberg TV on Wednesday. “We see really dynamic interesting news out of China, so it doesn’t surprise me that things stay volatile.”

Home to a large concentration of the world’s crypto miners, China has long expressed displeasure with the anonymity provided by bitcoin and other crypto tokens. The latest blow came last week when the country reiterated a warning that it intends to crack down on cryptocurrency mining as part of an effort to control financial risks.

Other commentators are more circumspect about the recent swings.

The end of bitcoin’s streak “above the 200-day average, and the gigantic spike in volatility, are not good signs if history is any kind of a guide at all here,” Sundial Capital Research founder Jason Goepfert wrote in a note.

Musk in February plowed $1.5bn of Tesla’s corporate cash into the token and said the electric-vehicle maker would accept it as payment, before rescinding the latter decision this month.

Roiled by Musk

While Musk has since said he strongly believes in cryptocurrencies as long as they don’t drive a massive increase in fossil fuel use, digital tokens are still nursing losses from his spate of recent actions and comments.

The volatility, regulatory scrutiny and worries about bitcoin’s environmental profile have dented the argument that the largest token will inevitably draw more mainstream investment.

Bitcoin is about $25,000 shy of its mid-April record of almost $65,000. The value of more than 7,000 tokens tracked by CoinGecko has dropped over $700bn to about $1.8 trillion from a May peak.

Over longer time periods, virtual currencies are still sitting on big gains. Bitcoin is up 358 per cent in the past year, Ether more than 1,300 per cent and meme-investment dogecoin some 14,000 per cent.