On May 19th, 2021, cryptocurrency exchanges saw Bitcoin prices crash from a high of $65,000 USD to $30,000 USD in the space of a month. While the average crypto trader expects the price of Bitcoin to experience fluctuations, the size of this crash left many wondering what had happened and how cryptocurrency trading would be affected in the future.
As cryptocurrency brokers, we at Aus Merchant do more than help people trade Bitcoin. We keep a close eye on the best cryptocurrency exchanges and crypto news to monitor just what is happening in the market. While there is no single event to point to as a culprit, we believe that two significant factors are of note.
Below we’ll explain the crash so that traders of all experience levels can understand it. In addition, we’ll propose how to mitigate the damage such drastic price drops cause. Take the time to learn from this event if you want to make the most of your crypto positions.
Cryptocurrency Prices Explained
Investing in cryptocurrencies like Bitcoin and Ethereum isn’t directly parallel to investing in assets in the traditional stock market. Whereas the price of assets on the US Stock Exchange shows a company’s success (measured in multiple ways, like overall profits and good press), the critical factor determining Bitcoin’s price is the issuance as rewards to miners as well as how much the network has been adopted as a form of money and store of value. As crypto trading has become more popular and the number of people storing their wealth in Bitcoin increases, due to its fixed supply the price is driven up alongside this use.
There are some similarities between Bitcoin and traditional stocks in the sense that sentiment affects the price. There is no central entity behind Bitcoin, therefore it is difficult for a trader to know when something which may influence investors confidence in the asset to know when to expect any coverage. That means they can’t capitalize on positive news or prepare themselves for negative news. May 2021 saw two devastating pieces of news happen in such a short period, leading up to the crash, China’s crypto Crackdown and the eccentric market manipulation of globalist billionaire Elon Musk.
China’s Crypto Crackdown
The Chinese government has been looking to ban citizens and businesses in the country from engaging in the market for many reasons, chief among them a perceived lack of safety due to crypto’s unregulated nature and potential security risks of the blockchain. Though speculation has been brewing for a long time, the announcement in May caught many traders completely flatfooted. China FUD (fear, uncertainty, doubt) has been a long standing narrative in the cryptocurrency space, similar stories appearing in 2014 and 2017.
Chinese regulators have chosen to reinforce their anti-cryptocurrency stance by prohibiting payment processors, banks, and businesses from conducting business with crypto. Besides triggering panic in traders at home and abroad, the real problem was faced by crypto exchanges, as they suddenly had to stop conducting operations in the country. Complicating matters further is Huboi, a massive cryptocurrency trading platform located in China. After limiting services in response to past government action, Huboi announced it has stopped supporting miner services, cutting off countless customers and halting their activity.
The reach of this crackdown has continued to expand into June, with the Chinese government demanding that electricity companies shut off power to miners by Sunday, June 27th as investigations continue throughout the Sichuan province. Many miners have taken this as the final nail in the coffin for Chinese crypto mining, and are reportedly looking for other places outside of the mainland to set up shop.
Tesla’s Bitcoin Backtrack
While China’s actions have undoubtedly had the most impact on the price of Ethereum and other coins, another event happened in similar time frames that garnered just as much attention. Electric car manufacturer Tesla announced that they would no longer accept Bitcoin as a form of payment due to concerns about mining’s impact on the environment.
While taking a positive stance like this would typically be good for a company, many traders couldn’t help but feel cheated. Elon Musk, the company’s CEO, had been openly promoting cryptocurrency investing for some time, even helping raise the price of the once fledgling Dogecoin. The announcement sparked a further price drop as traders tried to sell shortly after news broke.
Musk has since declared that Tesla would accept Bitcoin again, but only when cryptocurrency miners can prove that they are powering their mining efforts with at least 50% clean energy. While this has yet to materialise, the offer is on the table.
What Can Traders Do in the Future?
New traders should know that Bitcoin’s appeal is also what helps make it volatile. Beyond “stablecoins” that have their value pegged in part to a real-world currency, cryptocurrencies are unregulated and have very few safeguards in place to protect you from massive losses, as we saw in May. Having a high-risk tolerance is practically necessary when trading with crypto, as individual coins can experience multiple rises and falls over the average day. Though the crash was more severe than what markets would typically see, traders would do well to prepare themselves to experience both losses and gains.
But how do you survive crashes? For the answer, look at the Great Recession of 2008. As the stock market tumbled, investors sold in a panic to try and minimize losses. However, those who were patient and didn’t sell during the crash saw the market eventually return to its pre-crash position. Sometimes, the best strategy is holding, or ‘hodling,’ a persistent meme that has withstood the tests of time in the cryptocurrency world.
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Aus Merchant is a digital currency provider for investors and businesses. Our brokers help you navigate the often complicated and sometimes confusing landscape of digital currency. Whether you want to buy, sell, trade, hold, earn, spend or receive digital assets, Aus Merchant is here to help you realise your goal.
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