Bitcoin is pulling back from its record highs. The cryptocurrency briefly dipped below $30,000 Monday, just two days after breaching that level for the first time.
The price of bitcoin rallied to a fresh all-time high over the weekend, topping the $34,000 mark. That move was followed by a surge in smaller cryptocurrencies such as ether, which passed the $1,000 mark for the first time since February 2018.
Bitcoin slumped as low as $29,316 at around 5:40 a.m. ET Monday, falling 12% in the last 24 hours. It later went back above the $30,000 level, paring losses to trade at around $31,420, but was still down more than 6%.
"The most likely explanation for a pullback is short term profit taking by traders, rather than long term investors," Jason Deane, an analyst at crypto advisory firm Quantum Economics, told CNBC by email. "Given the current sentiment and appetite for Bitcoin, it seems likely that any correction will be short lived."
Bitcoin, the world's biggest cryptocurrency by market value, had a historic rally in 2020, advancing more than 300%. Created in 2009, it is viewed by advocates as a decentralized digital currency that forgoes the need for any single authority, such as a central bank.
Today, crypto bulls hail bitcoin as an inflation hedge similar to gold in the face of unprecedented government stimulus aimed at tackling the coronavirus pandemic. A number of institutional investors have shown increased interest in bitcoin, allocating a portion of their assets to invest in the digital currency.
"There's no denying that bitcoin has proven itself as an established and top-performing asset," said Eric Demuth, CEO of digital asset broker Bitpanda. "Bitcoin's value grew over 300% last year as more institutional investors took that leap to embrace digital currencies."
"We're seeing it emerge as a part of the recommended allocation strategy for institutional investors and investment banks."
Well-known investors like Paul Tudor Jones and Stanley Druckenmiller came out as believers in bitcoin last year, while large financial companies like PayPal and Fidelity have also made moves in the space. Meanwhile, the likes of Square and MicroStrategy have used their own balance sheets to buy bitcoin.
Still, skeptics see bitcoin as a speculative asset with no intrinsic value and a market bubble that is likely to burst at some point.
Bitcoin's 2020 performance was reminiscent of its frenzied rally to nearly $20,000 in 2017, which was followed by a sharp pullback the following year. However, crypto fans claim the recent rally is unlike that of 2017 as it's been driven by institutional demand rather than retail speculation.