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A large screen at the Bithumb exchange office in Seoul shows real-time cryptocurrency prices on Thursday. (Yonhap News)

There’s growing fear that liquidity is evaporating from the cryptocurrency market, which has been in freefall for several days now.

CoinDesk, a cryptocurrency news site, reported that the bitcoin price had regained its US$40,000 position at 4 pm on Thursday. The cryptocurrency’s price had threatened to fall below US$30,000 at one point on the previous day — just half of the previous high (US$64,000), posted on April 15.

Ethereum and Dogecoin’s rate of decline has also slowed to the single digits for the moment.

Bitcoin is trading for 51.5 million won (US$45,740) at the Korean cryptocurrency exchange Upbit, up 2%. The price rebounded after an ambiguous tweet by Elon Musk, CEO of Tesla Motors.

“In a tweet Wednesday morning [. . .] Musk said that Tesla had ‘diamond hands,’” CNBC reported. The phrase “diamond hands” is said to mean holding on to a security even when it loses value.

Pandemonium reigned at cryptocurrency exchanges around the world.

“Binance, the world’s biggest cryptocurrency exchange, temporarily disabled Ethereum withdrawals, citing network congestion, while Coinbase Global Inc. reported ‘intermittent downtime’ on its platform, before saying it had identified and fixed the issue.”

Trading volume soared as slaughter sales collided with bargain hunting.

Earlier, China warned its financial sector not to provide cryptocurrency trading services. That was followed by reports that China even intends to ban cryptocurrency mining.

Caixin, a Chinese business publication, reported that the Inner Mongolia autonomous region launched a platform on Tuesday that solicits tips about cryptocurrency mining operations. The move aims to eliminate the mining of cryptocurrencies in China to achieve national goals about reducing energy usage.

About 70% of the world’s bitcoin mining takes place in China. Some experts believe that Chinese bitcoin regulations could have an impact on other countries.

Gary Gensler, chair of the US Securities and Exchange Commission, said that bitcoin investors aren’t adequately protected, sparking fears about regulation.

Signs of inflation are triggering concerns about thinner liquidity, and experts think those concerns are having their first impact on the cryptocurrency market, which many see as overheated.

Experts quoted by the Wall Street Journal and other media said that the market is dominated by fears that the immense liquidity that has fueled soaring cryptocurrency prices is starting to dry up. The collapse in the price of bitcoins, a classic investment for speculators and the risk-tolerant, may show that the time has come to avoid risk.

Fears about reduced liquidity were exacerbated by the release of the April minutes of the US’s Federal Open Market Committee. The minutes recorded a discussion of tapering, which would entail the Federal Reserve reducing the scale of its asset purchases.

Barron’s, a financial publication, suggested that investors who’ve thought of bitcoin as a store of value, like gold, have been moving their funds out of bitcoin and into gold.

CNBC reported that “US$300 billion was wiped off the entire cryptocurrency market” on May 12, the day that Musk “suspended vehicle purchases using bitcoin.”

But others argue that bitcoin is as tenacious as a weed. In fact, the cryptocurrency has rebounded from 30-40% drops in the past.

Cathie Wood, head of Ark Investment Management, said that Bitcoin may be stumbling at the moment but that there’s definitely a floor and it will rise again.

By Han Gwang-deok, finance correspondent

Please direct comments or questions to [english@hani.co.kr]