Crypto Market Crash 2021

The cryptocurrency market crashed on Wednesday, 19 May, after China decided to ban
financial and payment institutions from providing cryptocurrency services.
Prices of major currencies, including Bitcoin, Ethereum, BNB and others crashed as much as 30
percent within the last 24 hours amid concerns over the climate implications of digital coins and
further comments from Elon Musk and Chinese government.
Bitcoin, the most popular cryptocurrency, is now down more than 40 percent from its record
level of $65,000 posted in April.
This development has come after billionaire and SpaceX founder Elon Musk halted sales of
Tesla cars using the cryptocurrency, owing to environmental worries.
As cryptocurrency value drops further, is it a good time to invest? Here's what the experts say.

Why Did The Crypto Market Crash?

On Wednesday, 19 May, People's Bank of China told nancial institutions that they should
'resolutely refrain' from providing services to digital currencies because of their volatility. As this
news surfaced, the crypto market crashed. However, it is not unusual for the value of Bitcoin to
change in such a short time period. Earlier, in December, Bitcoin closed under $30,000 but only
after 3 months the prices rose to $65,000. Speaking to The Quint, Ashish Mehta, Co-Founder,
DigitX explains the panic in the market which may have been triggered by about three major
rumours which may have impacted the decision of the sellers:
1. Tesla-Musk conundrum: Tesla recently announced that it wouldn’t favour Bitcoin on
'environmental' concerns because Bitcoin mining requires electricity which is mostly
generated using fossil fuels and therefore has a huge carbon footprint on the
environment
2. The reiteration of a previously imposed Chinese restriction of 2017 did some good
amount of damage as a fresh imposition of prevention of participation by nancial
institutions into the crypto space by the Government of China.
 3. Rumours of IRS investigation into the largest crypto exchange Binance – although
Binance is fully cooperating and nothing incrementing has surfaced so far – also
weakened investor resolution.

While it is interesting to note that Tesla isn’t selling Bitcoins. On the other hand, Grayscale
Investments, the rm which made Tesla buy Bitcoins, is gobbling up Bitcoins at cheaper prices.

How Did The Crash Impact the Cryptocurrencies?

After the news of Chinese government banning crypto transactions surfaced, every crypto asset
including Bitcoin, Ethereum, Dogecoin and BNB tumbled.
Most cryptocurrencies lost between 7 percent and 22 percent of their value and shares of Coinbase
dropped 5.4 percent.
Ethereum, Cardano and Dogecoin all saw heavy losses of between 15 and 20 percent.
According to crypto-trading platform Binance, Bitcoin was trading nearly 21% lower than its price 24
hours earlier at $34,693.
Since April, Bitcoin has lost about 40% of its value since when it hit a high of more than $64,606 per
coin. Before Wednesday, Tesla's decision to not accept the digital currency as payment for cars,
along with concerns about tighter regulation of digital currencies, were major factors in the decline.

What Was The Role of Elon Musk?

In February, Bitcoin prices hit a new record after Tesla Inc revealed that it has invested 1.5 billion
dollars in the cryptocurrency and will be soon accepting Bitcoin as a mode of payment for buying
Tesla cars.
The Bitcoin price had soared to an all-time record high of $44,795 on Monday as well, jumping the
price to a 15 percent hike, immediately after Tesla made the disclosure.
During this time, Musk also promoted the digital currency Dogecoin, which also spiked in value.
However, Musk reversed his decision by taking it to Twitter last week and said that Tesla won't
accept Bitcoin as a payment option for the purchase of its electric cars citing environmental
concerns.
Musk's decision sparked a row in cryptocurrency market, with prices of Bitcoin taking a hit since the
announcement. The cryptocurrency plummeted as much as 15 percent during the day to hit a low of
$45,700.
Since then Bitcoin prices continued to fall. Musk has shown quite consistently that he can cause the
price of bitcoins and other cryptocurrencies to soar or tumble.

What's Next?
Bitcoin is a phenomenon which has no company, no marketing, no promotions, expenditures and
such. It was an idea and the idea was so well placed in the context of the current financial systems
that it appealed to people and the caravan rolled on to become a strong phenomenon today.
Only recently, do we find institutional investors participating in realising its value and diversifying their
asset holdings into Bitcoin as an alternate asset class. So, towards the end of 2020 and through the
first quarter of 2021 we witnessed Bitcoin prices go rapidly up – much more rapidly that what we had
witnessed in 2017.
Mehta believes that what we witnessed in the last couple of days was liquidation of the leveraged
long positions followed by a panic selloff. "This is very normal in case of thin markets like
cryptocurrencies – with larger adoption, larger participation these wild movements and knee-jerk
reactions will thaw down for sure."

Should You Sell Or Hold Your Crypto Assets?

The Quint spoke to Industry experts to understand whether investors should sell or hold
cryptocurrencies.
Chandra believes that Investors should hold a long term view of the digital assets market. Altcoins
and Ethereum will bounce back swiftly. "Amateur investors would be better off staying away from the
market. The current volatility would be overwhelming for newbies in the crypto space,"he said.
Meanwhile, Mehta said that holding on to Bitcoin and Ethereum will be a wise option. "Amateur
investors should begin buying slowly and steadily through a systematic plan spread over the next
couple of years at least," he added.

Lessons from Bitcoin’s history

Bitcoin and other cryptocurrencies have fallen sharply in price from the highs they
reached just a few weeks ago. Bitcoin reached an all-time high near $65,000 in
mid-April. On Friday morning, the world's largest digital currency was worth about
$38,000, a steep decline of more than 41% in just five weeks.

For Bitcoin newcomers, this crypto crash is probably pretty scary. However, this drop
isn't surprising to those who know Bitcoin's history. Here are a couple things you need to
know to put the current crash into perspective.

1. Bitcoin has crashed before

Today's crypto crash is nothing new. Bitcoin has crashed 80% or more three different
times since 2012, according to Visual Capitalist. With this context, we see that the
current 41% drop is rather mild by comparison.

For the record, it can be problematic to study stocks based on their chart patterns
(known as technical analysis). After all, shares represent small ownership stakes in
real-world businesses. Over time, businesses grow, mature, and evolve. Sometimes
they even fail. For these reasons and more, stocks don't always behave predictably.

By contrast, cryptocurrencies aren't businesses. Yes, blockchain networks -- the digital

ledger technology on which cryptocurrencies are based -- can be adopted for real-world
applications. But blockchains differ from one another. And even when blockchain
technologies gain wider acceptance, this doesn't always guarantee their associated
digital currencies will increase in value.

Rather, cryptocurrencies are a simple case of supply and demand, in my opinion. If

demand for coins outpaces supply, prices go up. Therefore, I believe looking at the
historical pattern from Bitcoin's chart may be helpful.

With Bitcoin, demand is hard to predict. But past crashes occurred when long-term
utility was called into question. For example, Bitcoin had a sharp pullback when China
first announced restrictions for cryptocurrencies in 2017. Similarly, the current crash is
being helped along by new clarifications from China -- its citizens now can't use it as a
form of payment. From time to time, other countries propose similar limitations for
cryptocurrencies as well.
Whenever something puts Bitcoin's long-term future in doubt, demand is temporarily
stifled and a crash ensues. And if the current crash follows the historical pattern -- a
drop of 80% or more -- Bitcoin still has a long way to fall from where it is right now. From
its previous high, an 80% drop would take Bitcoin down to around $13,000.

2. Bitcoin has always bounced back

According to its protocol, Bitcoin's supply is fixed at 21 million coins. There are currently
around 18.5 million in existence. But new Bitcoins are "mined" and put in circulation on
a continual basis. Right now, there are about 900 new Bitcoins released every day as
new blocks are mined.

However, about every four years, the Bitcoin reward for mining is cut in half. This is
called a "halving event." At launch, miners were awarded 50 Bitcoins with each new
block. But there have now been three halving events, taking the current reward down to
6.25 Bitcoin per block. Previous halving events occurred on Nov. 28, 2012; July 9, 2016;
and May 11, 2020.

Going into 2020, many Bitcoin holders were expecting big gains from cryptocurrencies.
Looking at the past, some of the best years for Bitcoin were 2013 and 2017,
immediately following the halving event. This held true in 2020 and it makes sense.
Assuming demand is ongoing, the new limits on supply drive the price higher. But
eventually, prices spike high enough to limit demand and the price falls again.

No one knows the future, so no one can say whether Bitcoin is going up or down in the
near term. However, I would say the odds are high that the price of Bitcoin will be higher
following the next halving event, which is expected in 2024. Halvings have tended to be
catalysts in the past.
A final warning
Unfortunately, most people aren't thinking so long-term when it comes to Bitcoin. As
reported by CoinDesk, the recent crash caused $8 billion in forced liquidations on May
19 alone because investors had purchased Bitcoin using margin.

Paying for any investment with borrowed money is a bad idea -- especially one with a
history of wild volatility. If it goes up, margin can admittedly compound your gains. But
the opposite is true as well. If Bitcoin's history teaches us anything, it's to expect the
unexpected. If you're willing to hold a small position for the long term as part of a
diversified portfolio, then I would say buy some Bitcoin. But don't buy today hoping to
get rich quick. History shows there'll be sharp and lengthy setbacks along the way.