Bitcoin steadied after earlier slumping below US$30,000 on Friday in a retreat that stoked fresh questions about the sustainability of the cryptocurrency boom.

The digital coin traded around US$32,000 just hours after sliding as much as 7.7% to about US$28,818 in Asia in its latest bout of volatility. Commentators have cautioned that a sustained drop below US$30,000 could presage further losses. The largest cryptocurrency is on course for one of its worst weeks since the pandemic roiled financial markets in March last year.

“Being Bitcoin, a 10% range intraday is a mere flesh wound to the digital asset, in a world where tradable versus investible is seriously blurred,” said Jeffrey Halley, senior market analyst at Oanda Asia Pacific Pte. The digital coin could “easily be US$35,000 again tomorrow or could drop through US$30,000 and test notional support at US$27,000 .”

Bitcoin’s surge to a record of almost US$42,000 on Jan 8 embodied the embrace of risk in financial markets awash with stimulus. Some argue Bitcoin is also becoming a more mainstream investment with a role to play in hedging risks such as dollar weakness and faster inflation. Others see little more than speculative mania since the digital coin has more than tripled in the past year.

Pinpointing who is mainly responsible for the Bitcoin rally is one of the many crypto mysteries - Bitcoin funds, momentum chasers, billionaires, day traders, companies and even institutional investors have been cited.

For instance, Grayscale Investments, which is behind a popular Bitcoin trust, saw total inflows of more than US$3bil across its products in the fourth quarter. This week, BlackRock Inc dipped its toe into the crypto universe for the first time, saying cash-settled Bitcoin futures are among assets that two funds were permitted to buy.

Recent comments by Janet Yellen may be among the reasons for this week’s Bitcoin swoon, said Jehan Chu, managing partner with blockchain advisory firm Kenetic Capital in Hong Kong. In her Senate confirmation hearing, Yellen noted cryptocurrency as an area of concern for terrorist and criminal financing.

Describing such fears as “unfounded”, Chu said a “natural correction” is underway and that profit taking won’t “reverse the unprecedented assimilation of Bitcoin into Wall Street’s DNA, leading to US$100,000 levels this year”.

Some strategists are more sceptical. For instance, UBS Global Wealth Management recently warned that there’s nothing stopping a wipeout in big-name digital currencies eventually amid regulatory threats and central bank-issued competitors.

“Over the past few days, Bitcoin has been trading approximately 30% lower than the most recent all-time highs, and we’ve seen Asia take profits in Bitcoin in the lead-up to Chinese New Year,” said Fernando Martinez, head of Americas with crypto brokerage OSL. The next key level is US$27,750 - if Bitcoin falls through that it could retest US$25,800 , he said.

Bitcoin was trading at US$32,044 as of 2.25pm in Hong Kong on Jan 22. The wider Bloomberg Galaxy Crypto Index was down some 1.5%. Shares of Asian cryptocurrency stocks, such as Japan’s Monex Group Inc, also slid.

 - Bloomberg