Bitcoin dropped below $40,000 (£28,410) on Tuesday morning even as a survey showed hedge funds interest is on the up and billionaire venture capitalist Tim Draper said he is sticking by his prediction that the cryptocurrency will reach $250,000 by the end of 2022 or early 2023.
Bitcoin (BTC-USD) was down 1% and trading at $39,717 a day after it got a boost as American hedge fund magnate Paul Tudor Jones and Tesla (TSLA) boss Elon Musk threw their weight behind bitcoin, though it is still not close to its all-time high of about $63,000, which it hit earlier this year.
"Bitcoin is at its highest level since May, a notable recovery but the cryptoasset has yet to convincingly break through – and most importantly, close above – the $41,000 mark," said Simon Peters, cryptoasset analyst at multi-asset investment platform eToro.
“We've seen the price face resistance earlier in the year at this level when it was trading around what was then an all-time high, and I would really need to see a stronger increase to feel optimistic about the price recovering and possibly pushing onto $50,000 and beyond.”
Meanwhile, the Financial Times reported on Tuesday that hedge funds plan to increase their exposure to cryptocurrencies by 2026, citing a survey by fund administrator Intertrust.
The publication said this was “a major vote of confidence for digital assets after recent large price falls and plans for punitive new capital rules.”
The most recent example of this is a top global banking regulator proposing strict rules for cryptos that could make them costly for banks, and putting bitcoin in its highest risk category.
The report also said "the growing enthusiasm shown by hedge funds stands in sharp contrast to widespread scepticism among more traditional asset managers, many of whom remain concerned about cryptocurrencies’ huge volatility and uncertainty over how they will be regulated."
The FT report comes as Bank of America's (BAC) long-running fund manager survey shows most professional money managers still think bitcoin is a bubble.
Earlier this morning, Naeem Aslam, chief market analyst at Ava Trade said: “Investors should closely monitor the performance of bitcoin as traders have finally built a bullish momentum.
“The bitcoin bulls are trying to take the control back and the hope is that we will finally see the bitcoin price moving towards the $50K price mark."
"We truly believe that in the coming days we are going to hear from miners that most of the energy which is being used for mining is clear energy. Such a development... is very much likely to be the next catalyst for bitcoin’s price to begin its next bull run," he added.
This comes amid much concern around the carbon footprint of mining bitcoin.
Watch: What are the risks of investing in cryptocurrency?
Read more: How bad is bitcoin for the environment?
Meanwhile, bitcoin earlier got a boost when El Salvador accepted it as legal tender.
"Tanzania is the latest emerging economy poised to embrace crypto in the wake of El Salvador’s announcement. Several other countries have also been making noise, including Panama, Mexico, Venezuela, Brazil, Nicaragua, Argentina and Malta," said Alexandra Clark, sales trader at the UK based digital asset broker GlobalBlock.
"The wave of adoption from corporates and countries is driving greater awareness and forcing other more reluctant players to act. This is particularly true among pension providers and wealth managers," she added.
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