Bitcoin plunged to $30,000 levels!
Crypto investors lost a whopping $830 billion in the blowout few weeks ago!
Almost every one of us has heard media calling out these headlines and crying out loud on the recent crypto crash looming all over the world, but did you know that this wasn’t the first time when the crypto market saw such a dip? If you see the history of cryptocurrencies, there have been multiple dips of 10-20% in bitcoin which ultimately led to a crash in the crypto market. In 2013, bitcoin fell by 61% from its peak of $266. However, this time, it’s not the same. Things are way more intense and different than they have ever been in cryptocurrencies. And that’s exactly what we’re going to discover ahead.
Bitcoin, after hitting an all-time high of $64000 in April plunged more than 40% in its value taking all the other cryptocurrencies and the investors for a roller-coaster ride. However, some supporters still believe that bitcoin could eventually replace fiat currencies (rupee in India) sooner or later, thanks to the growing popularity of digital payments. Moreover, as a medium of exchange, bitcoin could help us a lot when it comes to being protected from the manipulation by governments and central banks, offering a more democratic payment system.
Whereas on the other hand, sceptics feel that cryptocurrencies like bitcoin have no intrinsic value and that it poses a huge risk for investors as they are not protected by any regulator or a financial institution, in case the asset tanks. Some people even argue – Are Cryptocurrencies an asset class for real? No matter how good or bad cryptocurrency is or could be, this crash has been so severe that it has now raised a lot of questions in the minds of many investors about the bull market remaining in play for 2021. So, without any further delay, let’s break out the suspense and try to understand.
“Why and how did it all start in the first place?”
The Musk Effect
On 13th May 2021, Tesla CEO Elon Musk, known for backing cryptocurrencies through his Twitter handle and managing to create a rise in the prices of the tokens, seemed to have done the opposite for a change. Mr. Musk, all of a sudden, announced that Tesla will now be suspending vehicle purchases using bitcoins. When asked for the reason, Musk cited concerns about the rapidly increasing use of fossil fuels for bitcoin mining and transactions. When critics evaluated the matter, they found out that a single bitcoin transaction uses the same amount of power that an average American household consumes in a month. Since the beginning, Elon Musk has been one of the key reasons that cryptocurrency has broadly been on a prolonged uptrend. After Tesla disclosed in February that it had purchased $1.5 billion worth of bitcoins and planned to accept it as a mode of payment, bitcoin prices surged to new highs. That announcement added legitimacy to the cryptocurrency as an increasingly acceptable form of payment and investment. However, after the recent tweet citing the environmental concerns, the value of bitcoin slid from $54,819 to $45,700, taking down several other cryptocurrencies as much as 15% within two hours following the tweet.
Elon Musk is now accused of manipulating and triggering a crash in the cryptocurrency market by using his massive following to influence people into investing in several cryptocurrencies like bitcoin and dogecoin. However, Elon Musk is under no scrutiny as he did not violate any law by tweeting his thoughts. Nevertheless, this accusation has led to a bunch of crypto enthusiasts launching a coin known as “STOPELON” to stop Elon from tweeting on this subject. The coin rose as much as 1800% within 24 hours of its debut.
Was Elon Musk the only reason behind the crash?
Not really. In fact, the musk effect was just the beginning, the major correction came after…
The Chinese Move
China, the world’s largest bitcoin miner, announced on the 19th may that it has barred all financial institutions and payment companies from providing any services related to cryptocurrency transactions. This means that any bank or online payments channel residing in China must not offer any services involving cryptocurrencies, such as registration, trading, clearing, and settlement. But why would China do that? As per an article by Forbes, this was done to protect the interest of Chinese investors against crypto market’s high volatility. China believes that like bitcoin, being a specific virtual commodity that is not issued by any monetary authority and has no monetary properties such as being a legal tender, it could not be treated as a real currency in the market.
As news of the Chinese ban was out worldwide, many Chinese and other investors sold their Bitcoin and other cryptocurrencies to protect their investments, which ultimately led to bitcoin trading nearly 21% lower at $34,693 within a few hours.
China has previously issued such a ban in 2017 as well. Although compared to the previous ban, new regulations have expanded the scope of prohibited services.
The Billion Dollar Question
Now that we have analysed and looked at the major reasons that contributed to this chaos, let’s conclude it with the billion-dollar question,
Is it a good time to buy the dip?
The answer is YES and NO.
It all boils down to one question: How much faith do you have in cryptocurrencies?”
If you’re positive and bullish when it comes to the future of cryptocurrencies, this might be the best time for you to buy during the dip. And on the other hand, sure, if your analysis doesn’t allow you to believe in cryptocurrencies and you think that the market is going to go down further, then you may choose to steer clear of cryptocurrencies.