It is nothing short of a circus whenever you invest in a cryptocurrency. The volatility experienced in the crypto world by users is quite terrifying. It even makes some faithful users feel like they have been conned.
What a week it was, nothing short of a roller coaster ride. A week ago, a broad crypto crash was recorded from $2.5 trillion to $1 trillion in market value. Bitcoin dominates more than 40% of the global crypto market, lowest since January.
Continued to be haunted by regulatory concerts, on Friday, Bitcoin recovered slightly to around $37,000, far from its all-time high above $64,000 that hit a month ago.
Given that the crypto market is volatile, the explosive growth has attracted mobs of amateurs and professional investors looking for a quick profit.
Many enjoy an upswing ride only to get out, or panic sells when things are out of hand and may register gains or losses.
This week was governed by a combination of factors. Right from government exhortation of increasing regulations to the tweets by Elon Musk, a market influencer added fuel to the already volatile market.
So what went wrong?
The crypto market was highly volatile for about a week before the crash on Wednesday.
On May 12th, Elon Musk declared that Tesla wouldn’t accept bitcoin as payment as he is concerned about the cryptocurrency’s massive carbon footprint. When Musk added a pair of contradicting tweets last weekend, investors were left confused. These tweets further aggravated the already confused investors.
The crash came big-time when the Chinese officials signaled restriction of crypto use in the country. The central bank warned Chinese financial institutions and businesses to deny digital currencies as a mode of payment or offer services using them.
The increased regulation threat triggered a state of panic, and bitcoin plunged before recovering slightly and leveling off. Other cryptocurrencies were also hit hard. Ethereum recorded its fall of more than 40%, while Dogecoin and Binance recorded a 30% loss. After a substantial loss, Bitcoin recovered and was back to $41,000. As the Chinese officials stated on Friday regarding the need for the crypto crackdown, bitcoin was trading around $37,000 on Friday afternoon. This was the case with the rest of the cryptos trading in the red.
Concerns about Regulations:
China has had a long history of limiting the usage of crypto trade within its border. In 2013, the officials declared that bitcoin was not a real currency, and the central bank imposed a ban on financial and payment institutions. As a result, major mainland Chinese exchanges have shut down crypto trading, even though individuals can hold and trade cryptocurrencies.
This week’s statement underlined China’s suspicion of cryptocurrencies. However, Beijing has sent a clear signal stating that it has not loosened its grip on the market. Instead, authorities have indicated that they will be launching Digital Yuan, governed under strict guidance.
Not leaving China behind is the US. On Thursday, Jerome Powell, Federal Reserve’s Chairman, warned about the potential risk of the cryptocurrencies to the financial system. He further said that this summer, the central bank would publish a paper and will explore the possibilities of the US government developing its very own digital currency.
A central bank’s digital currency potential serves and compliments cash and current private sector digital forms of the dollar, such as deposits at the commercial banks.
The crypto space is also on the Treasury Department’s attention. On Thursday, the officials stated that the Internal Revenue Service should be informed if the transfer of any digital currency is valued at $10,000 or more.
The Treasury Department said that detecting a cryptocurrency poses a significant problem by making illegal activities, including tax evasion, easy. Even though a relatively small portion dwells in crypto trade and transaction, it would surely increase in the next decade.
After the statement from US officials on Thursday, Bitcoin, which was nearly 6%, trimmed off its gains.
What is the future of Cryptos?
Due to high volatility creating massive swings in the crypto market was a test for the cryptocurrency fans. However, a true investor would take an optimistic long-term view. Bitcoin was trading at $7,000 per coin at the beginning of 2020. Taking cues from the current market analysis, bitcoin is still 400% high even after crashing this week.
On Wednesday, the managing director of a crypto-focused investment firm William Quigley said that they all tend to focus daily and weekly, but that is not how most people buy cryptocurrencies or even stocks.
Vitalik Buterin, co-creator of Ethereum, said in an interview when asked if it was a bubble. He said that it hardly surprised him and had seen such crashes previously. He said that at least three of these big bubbles had been seen. However, the bubbles stop due to some events, which makes it clear that the technology has not reached there yet.