Bitcoin's rebound is likely to be short-lived and by the end of this year, experts said the cryptocurrency is projected to trend down to the $6,500 level.
On Tuesday, the world's most popular digital money rose 4.9 percent to $7,187 after dipping below the $7,000 point to a six-month low on Monday, as China's ongoing efforts to clamp down on cryptocurrencies caught the sector off balance.
Last week, China's central bank branch in Shanghai issued a statement calling on stakeholders "not to equate blockchain technology with virtual currencies."
"Investors can report to regulators if they discover that anyone or organizations continue to provide virtual currency trading," he said, adding that entities involved in helping to channel trading orders to offshore registered cryptocurrency exchanges will be ordered to shut down.
Bitcoin saw an upswing after Chinese President Xi Jinping said at the end of October that blockchain technology development should be accelerated and actively integrated into the economy. Bitcoind rallied to $10,021 on October 26, a point it had not exceeded since the end of August.
"Xi's speech in October took out of context by a few advocates of the trading society on social media as China welcomes virtual currency trading and bitcoin," said Patrick Heusser, chieft finance trader at Crypto Broker, an electronic currency brokerage firm in Zurich.
He said that only a few days later the market learned that the comments of Xi were misinterpreted and that only the Chinese president embraced the fundamental blockchain technology of the cryptocurrency.
Monday's bitcoin the decline came in the wake of strong price trade, growing to a one-month peak of $42.7 billion. Heusser said this was partly due to massive liquidation by retail investors who surrendered their leveraged roles on markets selling highly leveraged options, or perpetual swaps.
According to Stephen Innes, the Asia-Pacific market strategist at the foreign exchange trading platform AXI Trader, the highly volatile cryptocurrency could drop even further to $5,000.
In contrast to the People's Bank of China's clampdown, he said that bitcoin was further pounded by volatility investors who turned to digital assets when volatility rose in other mainstream asset classes including foreign exchange, stocks, and securities.
Meanwhile, the Chicago Board Options Exchange's Volatility Index, or VIX index, which is a measure of the S&P 500 index's price fluctuation over the next 30 days, fell to a year's low of 11.87. Offshore renminbi's one-month implied volatility peaked at 5.12 percent, the lowest in a seven-day span.
