Volatility, but the kind that wrecks your portfolio is every investor’s nightmare. And speaking of volatility, cryptocurrencies across the board crashed overnight.
Bitcoin (CRYPTO: BTC) fell by as much as 30% from ~US$43,500 on Wednesday to a low of US$30,000 around midnight. The crash was even scarier for Ethereum (CRYPTO: ETH), which dived from US$3,400 to lows of around US$1,840 or a 45% fall.
It wasn’t unusual for other tokens such as Dogecoin (CRYPTO: DOGE), at the height of the selloff, to be down by more than 50%. Thankfully for investors, the digital currencies did manage to stage a partial comeback from their worst of their lows.
What’s causing crypto to crash?
China draws the line against crypto
A joint statement from China’s finance, banking and clearing bodies effectively banned domestic financial and payment institutions from any form of cryptocurrency-related activities.
Elon turns his back on Bitcoin
Elon Musk has been a major supporter of Bitcoin and a driver of cryptocurrency prices. However, the significant energy usage required for most crypto mining is counter-intuitive to the goals of Tesla Inc (NASDAQ: TSLA).
Musk significantly downgraded on his public support for Bitcoin recently by stating Tesla would no longer accept Bitcoin as a payment option.
Crypto slump triggers $8 billion in liquidations
The sudden pullback in crypto prices sent earthquakes across its derivatives markets. There are reports that this has led to more than US$8 billion in position liquidations due to margin calls. Bybt observes that in the last 24 hours, ~840,000 traders were liquidated, amounting to a total value of US$9.13 billion.
Crypto prices could have been pushed lower as leveraged investors and traders were forced to sell their positions.
Is there still hope for Bitcoin and other cryptos?
On a more positive note, the Bitcoin price managed to recover to around US$37,500 at the time of writing from lows of US$30,000, or a swift 30% bounce. The bounce was more ridiculous in the case of Dogecoin, which bounced more than 50% from lows of 21 US cents to 36.5 US cents at the time of writing. The narrative is the same for the likes of Ethereum, which bounced 40% from the US$1,830 low to US$2,410 at the time of writing.
Furthermore, China’s ordeal with cryptocurrencies is nothing new. In September 2017, China banned Initial Coin Offerings (ICOs) in an attempt to protect investors. The ICO rules also banned cryptocurrency trading platforms, resulting in most trading platforms shutting down. The country’s new policies have now taken the ban to institutions, making it clear that they cannot accept or settle any virtual currencies.
The push-pull effect of Elon Musk’s tweets is also nothing new. The suspension of Bitcoin payments also came with the comment that “cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment”.