$1 Trillion wiped off as the Crypto Market Crashes

The cryptocurrency market started witnessing financial weakness starting from May 12, when Tesla CEO Elon Musk stated on Twitter that the company would no longer accept payments for their cars in Bitcoins. Musk stated that the environmental cost of bitcoin is too high at the moment for commercial usage. Following his statement, all cryptocurrencies began a downward spiral that lasted for a week before culminating in a total crash on May 17, wiping out a total of 1 trillion dollars from the crypto market.

Before this massive crash, cryptocurrencies had a nearly year-long bull run that resulted in several currencies reaching an all-time high by April 2021. Bitcoin, which began its journey upwards from $29,000 per coin in March 2020, reached $64,000 in April 2021. After the crash, it is back down to a valuation of $30,000 as of Wednesday, May 19.

While markets were shaky after Musk’s statement, the reason behind the crash has been attributed to a growing concern among many world governments regarding regulating cryptocurrency trading. On May 19, China announced a total crackdown on cryptocurrencies within its borders. The Central Bank of China issued a directive to all banks and financial institutions, instructing them not to accept any digital currency as payments for their services. Efforts are also underway for the launch of a state-backed digital currency known as the “digital yuan,” which intends to keep cash flow under strict scrutiny.

Apart from China, several other governments worldwide have already expressed their dissatisfaction with trading a currency that is beyond central control. Many banks in India, for example, have cut ties with national crypto exchanges such as WazirX and CoinDCX, even as the crypto market in the country grew to $1.1 billion over 2020–21.

On the other hand, the chairman of the US Federal Bank, Jeremy Powell, warned people about the risks of investing in cryptocurrencies. He further stated that the Central Bank would publish a paper this summer exploring the possibilities of developing a digital currency of their own, similar to China.

This threat of increased regulation incited panic among amateur and seasoned investors, who swiftly began selling their stake in the crypto market. As a result, not only Bitcoin but several other cryptocurrencies suffered a heavy downturn in valuation. Ethereum, which broke the $4000 price point briefly in early May, making its founder Vitalik Buterin a billionaire, dropped more than 40% in valuation. Other prominent currencies such as Dogecoin and Binance coin fell by 30%.

The future of cryptocurrencies remains uncertain as of now. In an interview with CNN Business Week, Ethereum co-creator Vitalik Buterin said that we might be in a crypto bubble, but it’s something that he has seen at least three times before. According to Buterin, the bubbles end up stopping because certain events happen each time, making it clear that cryptocurrencies are not ready for mass adoption yet.

References

1. Exclusive: The 27-year-old behind ethereum isn’t surprised by the crypto crash https://edition.cnn.com/2021/05/20/investing/vitalik-buterin-ethereum-billionaire/index.html
2. Explained: Why did the cryptocurrency market crash last week? What’s next? https://indianexpress.com/article/explained/bitcoin-ethereum-cryptocurrency-crash-china-7321942/
3. Bitcoin Plummets After Powell Speech https://www.gotradingasia.com/currency-analysis/18494-bitcoin-plummets-after-powell-speech

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