Bitcoin Price Plunges Below $30,000 Because Of 'Short Term Profit Taking'

After a parabolic rally that went as high as $34,000, Bitcoin took a breather Monday to correct at around $29,000-$30,000. Analysts say this correction will be short-lived.

While Bitcoin closed Monday at $32,019, it actually plunged to $27,600 the same day, an alarming $6,000 drop from the daily high of $33,700. Cryptocurrency veterans have been used to this kind of volatility that does not exist in other markets.

Jason Deane, an analyst at Quantum Economics, said the correction happened due to traders taking profit from the parabolic rally and not because of long term investors cashing out. "The most likely explanation for a pullback is short term profit taking by traders, rather than long term investors. Given the current sentiment and appetite for Bitcoin, it seems likely that any correction will be short-lived," Dean told CNBC.

Bitcoin is perceived as a digital version of gold, owing to its unique ability to be a hedge against inflation and economic uncertainty.

Many analysts have pointed out the difference between the 2020 rally and the one from 2017. While 2017 was marked by frenzied retail investors hoping to cash out, 2020 saw increased participation from institutional investors.

With institutions like Mass Mutual and Guggenheim Investments publicly declaring their interest in Bitcoin, and companies like Square and MicroStrategy putting a portion of their reserves into the cryptocurrency, it was clear that Bitcoin's 300% growth the previous year was driven by institutions leaping to embrace digital currencies, said Eric Demuth, CEO of Bitpanda.

"There's no denying that bitcoin has proven itself as an established and top-performing asset," he told CNBC.

Still, before the day ended, the market prices jumped after the U.S. Office of the Comptroller of the Currency (OCC), the country's currency regulator, issued a letter giving approval for U.S. banks to use public blockchain networks.

The news stopped the price decline and Bitcoin got sustained at $30,000. However, the real winner Monday was Ethereum, the dominant public blockchain network, Coindesk reported. Ethereum reached $1,100 but got pulled down by Bitcoin, slumping to as low as $889. The OCC news allowed Ethereum to return to $1,000, a price level it has not reached since January 2018.