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Bitcoin’s price descended further on Tuesday as U.S. Treasury Secretary Janet Yellen and Tesla CEO Elon Musk weighed in on the cryptocurrency’s recent rally.
The world’s most valuable digital coin plunged 11% in 24 hours, sinking below $50,000 to trade around $48,080 at 11:30 a.m. ET, according to data from Coin Metrics. It had earlier fallen as much as 16% to hit an intraday low of $45,041.
Yellen on Monday called bitcoin an “extremely inefficient way of conducting transactions” and warned about its use in illicit activity. She also sounded the alarm about bitcoin’s impact on the environment. The token’s wild surge has reminded some critics of the sheer level of electricity required to produce new coins.
Bitcoin isn’t controlled by any central authority. So-called miners run high-power machines that compete to solve complex math puzzles in order to make a transaction go through. Bitcoin’s network consumes more electricity than Pakistan, according to an online tool from researchers at Cambridge University.
Yellen also warned about the risks for retail investors buying bitcoin.
“It is a highly speculative asset and you know I think people should be aware it can be extremely volatile and I do worry about potential losses that investors can suffer,” the former Federal Reserve chair told CNBC’s Andrew Ross Sorkin at a New York Times DealBook conference.
Bitcoin is still up more than 360% in the last 12 months and around 60% since the start of the year, and price swings of more than 10% aren’t a rarity in crypto markets. Bitcoin once climbed to almost $20,000 in 2017 before shedding 80% of its value the following year.
The digital coin hit $1 trillion in market value for the first time last week — though it has now sunk below $900 billion, according to CoinDesk. It has gotten a boost from news of Wall Street banks and large companies like Tesla and Mastercard warming to cryptocurrencies.
Tesla’s Musk said over the weekend that the prices of bitcoin and ether “seem high.” His comments came after Tesla’s announcement earlier this month that it had bought $1.5 billion worth of bitcoin. Tesla shares on Monday suffered their biggest fall since Sept. 23.
“It’s a virtual forest fire,” said Glen Goodman, a U.K.-based trader. “The wood was bone-dry and waiting for a spark. Elon Musk was that spark.”
“Crypto futures traders were borrowing so much money to buy Bitcoin contracts, they caused borrowing rates to skyrocket,” Goodman added. “By Saturday 20th Feb, they were paying 144% per annum. Clearly that situation couldn’t continue. In those conditions, prices have to fall to shake out the over-optimistic borrowers and return borrowing rates to normal levels.”
Bitcoin has been getting traction from mainstream investors, in part because of the perception that it’s a store of value similar to gold. Bullish investors claim the cryptocurrency can act as a hedge against rising inflation.
But skeptics warn that bitcoin has no intrinsic value and is one of the biggest market bubbles in history. Analysts at JPMorgan last week said bitcoin was an “economic side show” and that crypto assets rank as the “poorest hedge” against significant declines in stocks.