A representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken January 8, 2021. REUTERS/Dado Ruvic/File Photo

By Kevin Buckland, Julien Ponthus and Gertrude Chavez-Dreyfuss

TOKYO/LONDON/NEW YORK (Reuters) - Bitcoin dropped on Monday, falling from a record high above $60,000 over the weekend, as investors digested a potential ban from India on cryptocurrencies.

The cryptocurrency had hit a record high of $61,781.83 on Saturday after U.S. President Joe Biden signed off on his $1.9 trillion fiscal stimulus and ordered an acceleration in vaccinations.

Because some investors tend to see bitcoin as a hedge against inflation, analysts believe the rise of bitcoin has been helped by the prospects of a steep economic recovery.

In afternoon trading, bitcoin was down 5.3% at $55,865,

A senior government official told Reuters overnight that India, Asia's third-largest economy, is preparing a bill that would criminalise possession, issuance, mining, trading and transferring crypto-assets.

The bill was in line with India's January government agenda that called for banning private virtual currencies such as bitcoin while building a framework for its own official digital currency.

"Renewed interest from the Indian government in banning cryptocurrencies led to the initial drop from the $60,000 range down to $56,000," said John Wu, president of AVA Labs, an open-source platform for creating financial applications using blockchain technology.

In India, despite government threats of a ban, transaction volumes are swelling and 8 million investors now hold 100 billion rupees ($1.4 billion) in crypto-investments, according to industry estimates. No official data is available.

The world's largest virtual currency hit $61,781.83 on Saturday, rising more than 40% since late February, as investors shrugged off concerns over sky-high valuations.

Despite Monday's pullback, many investors believe the outlook for bitcoin's price remains tilted to the upside.

Seth Melamed, the Tokyo-based chief operating officer of cryptocurrency exchange Liquid, said legislation of the sort India is proposing will not be an impediment to further gains for bitcoin.

"Because it's decentralized, government bans or acceptance is somewhat irrelevant," Melamed said. "Capital will find a way."

Bitcoin has risen more than 90% this year, broadly outperforming traditional asset classes, fuelled by the embrace of cryptocurrencies by mainstream companies and large investors, including Tesla Inc and Bank of NY Mellon.

"The reason bitcoin's continued rise is such a surprise to the traditional financial market is because they are looking at its fundamentals, while they should be looking at the market forces driving its adoption," said Sergey Nazarov, co-founder of Chainlink, a decentralized network that provides data to smart contracts on the blockchain.

"Bitcoin is involved in the same market dynamic as all Fiat money, where market forces determine its value much more than any kind of clear fundamentals," he added.

Bitcoin's record on Saturday was hit in thin markets due to the weekend, with technical factors magnifying the move higher, said Justin d'Anethan, sales manager at digital asset company Diginex in Hong Kong.

(Reporting by Kevin Buckland, Julien Ponthus, Gertrude Chavez-Dreyfuss, Sagarika Jaisinghani and Alun John; Editing by Jacqueline Wong, Nick Zieminski and Dan Grebler)

-- © Copyright Reuters 2021-03-16

 

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1 hour ago, webfact said:

"Renewed interest from the Indian government in banning cryptocurrencies led to the initial drop from the $60,000 range down to $56,000," said John Wu, president of AVA Labs, an open-source platform for creating financial applications using blockchain technology.

lol. BTC corrected like it always does after hitting certain fib retracement levels, which is what traders typically watch. The news has little bearing. It always moves in waves and is not healthy if it goes in one direction. It wouldn't surprise me that governments and banks are getting twitchy, however, as they are going to lose out.

Bitcoin bans india

4 hours ago, webfact said:

"The reason bitcoin's continued rise is such a surprise to the traditional financial market is because they are looking at its fundamentals, while they should be looking at the market forces driving its adoption," said Sergey Nazarov, co-founder of Chainlink, a decentralized network that provides data to smart contracts on the blockchain.

"Bitcoin is involved in the same market dynamic as all Fiat money, where market forces determine its value much more than any kind of clear fundamentals," he added.

Yes, looking at its fundamentals Bitcoin is literally based on nothing.  But indeed it are market forces (demand for it higher than supply, thus boosting the price upwards) that determine its trading price (I refrain from using the word value here).  As the saying goes: Something is worth what the fool is willing to pay for it.  Which in this case does not mean that you are a fool betting on its continual rise...

5 hours ago, Peter Denis said:

Which in this case does not mean that you are a fool betting on its continual rise...

Good to see you are still buying the dips like the rest of us.