Bitcoin drops below $40,000 for the first time in 14 weeks, but a bottom could be near

• Bitcoin fell over 13% to hit an intraday low of $38,585.86 at around 12:54 a.m. ET, according to CoinDesk data. That was the lowest level since Feb. 9, the last time it dropped below $40,000.
• Bitcoin is off about 39% from its all-time high of $64,829.14 which was hit in mid-April.
• Tesla's decision on May 12 to suspend vehicle purchases using bitcoin caused over $300 billion to be wiped off the cryptocurrency market.
• On Tuesday, three Chinese banking and payment industry bodies issued a statement warning financial institutions not to conduct virtual currency related business.

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Bitcoin fell sharply on Tuesday continuing a major sell-off that began a week ago.

The digital currency fell over 13% to hit an intraday low of $38,585.86 at around 12:54 a.m. ET, according to CoinDesk data. It was the lowest level since Feb. 9, the last time it dropped below $40,000.

Negative news over the past week has dampened sentiment for bitcoin.

On May 12, Tesla CEO Elon Musk said the electric carmaker had suspended vehicle purchases using bitcoin, citing environmental concerns over the so-called computational "mining" process. This is where high-powered computers are used to solve complex mathematical puzzles to enable transactions using bitcoin.

Musk's comments caused over $300 billion to be wiped off the entire cryptocurrency market that day.

The announcement to suspend bitcoin payment came just three months after Tesla revealed that it bought $1.5 billion worth of bitcoin, and would start accepting bitcoin in exchange for its products.

Early this week, the Tesla CEO clarified that the company has "not sold any Bitcoin."

Then on Tuesday, three Chinese banking and payment industry bodies issued a statement warning financial institutions not to conduct virtual currency related business, including trading or exchanging fiat currency for cryptocurrency.

China's hard line on digital currencies is not new. In 2017, authorities shut down local cryptocurrency exchanges and banned so-called initial coin offerings (ICOs), a way for companies in the space to raise money through issuing new digital tokens.

Traders in China once accounted for a huge share of the bitcoin market but after the crackdown, their influence was reduced significantly. Chinese cryptocurrency operations have moved abroad.

Bitcoin is still up over 40% year-to-date and 320% in the last 12 months.

Close to a bottom for bitcoin?

Bitcoin is off by about 39% from its all-time high of $64,829.14 which was hit in mid-April.

Vijay Ayyar, head of business development at cryptocurrency exchange Luno, said that a 30% to 40% pullback is "normal" during bitcoin bull markets.

"So this is very much expected after we topped out at 64K ($64,000)," he said.

Ayyar pointed to a roughly 35% correction in January as well as similar falls during the huge run-up in bitcoin's price in 2017.

"We are definitely close to a bottom" around $38,000 to $40,000, he said.

Bitcoin bull Mike Novogratz told CNBC on Tuesday that he sees $40,000 as a buying level for the digital currency. The investor, who runs cryptocurrency financial services and investment management Galaxy Digital, said he expects bitcoin to consolidate in a trading range between $40,000 to $55,000.

"Then we'll have another leg up. And I say that not just by guessing. We see institutions moving in, and it takes them a while," Novogratz said.

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