Crypto Crash Conundrum

The price of bitcoin has been falling since April, and the investors are worried.
With the increasing popularity of cryptocurrency and its value zigzagging across the graph with
seemingly no restraint, many specialist jargons have become pervasive among analysts, appearing
especially on certain sites and blogs of experts, such as “bull run”, “bearish market”, but above all, to
a “key threshold”, located at 30,000 dollars. A series of factors appear to have led new crypto
investors to mass sell their digital assets, accelerating the bearish period that bitcoin and the rest of its
kins. Although, the prices of several cryptocurrencies regained some colors, Bitcoin, the world's
largest cryptocurrency by market capitalization, which was worth just over $ 40,000 have no seen the
same green pasture again. Ethereum, Binance Coin, XRP, and Dogecoin had a similar fate.
The problem is this notion of threshold does not only apply to bitcoin or cryptocurrencies: it is a term
that borrowed from stock market assets. Each stock has a threshold, which is also called the
"resistance level". But there is simply not enough evidence that the same ideas apply to crypto,
especially with the crashing market.
So why is the Crypto market crashing?
The heavy fall on Wednesday, May 19 was such that it caused malfunctions on exchange platforms
such as Coinbase. The following points are key to understand the crash.
Beijing regulations
The Chinese government announced several measures to limit the use of cryptos in the country.
Among them, the ban on financial and payment institutions from providing cryptocurrency services.
Beijing also denounced the speculative nature of cryptocurrencies. It bears to recall that China is
currently testing a digital yuan with the particular aim of eventually competing with the dollar in
international trade.
China had already announced these bans in 2013 and 2017. The announcement was mainly intended
to reaffirm Beijing's anti-crypto positioning. Chinese authorities reiterate today that “recently,
cryptocurrency prices have skyrocketed before collapsing, and speculative cryptocurrency trading has
surged, severely undermining the security of people's property and disrupting the economy. 'normal
economic and financial order'.
Tesla's flip-flop
The price of bitcoin had already fallen below the $ 45,000 mark, a first since February. Just around
the time, Elon Musk, CEO of Tesla, announced that the company no longer accepts bitcoin as a means
of payment for its vehicles. The company had announced the opposite only three months earlier when
Tesla had indicated that it had acquired $ 1.5 billion worth of bitcoins (at the end of April, its bitcoin
portfolio was valued at $ 2.48 billion).
Tesla cited environmental reasons for the dramatic turnaround: Bitcoin mining increasingly relies on
carbon-rich fuels. But this significant consumption of fossil fuels has been known for a long time,
which has led some observers to wonder if this decision was not instead dictated by Tesla investors
hesitant in the face of the volatility of bitcoin and the fact that it- this could affect the value of the
vehicles sold by the company.
Confusion and panic
On Monday, May 17, Elon Musk reassured the crypto community by arguing that Tesla had not sold
bitcoins, while rumours suggested the opposite. However, the combination of Tesla's announcement
and that of China seems to have created a wave of panic and confused many short-term investors, who
preferred to sell their assets and accelerate the fall.
“Crypto markets are currently incorporating a cascade of information that feeds the downtrend in
price movements,” said Ulrik Lykke, executive director of crypto hedge fund ARK36, quoted by
Reuters. For him, this heavy fall will have only a short-term effect: the downward trend of the last few
days “can take a lot of magnitudes and upset the mood of the market”, but will have “little
importance. in the long term”, he assured.
Simon Peters, an analyst at eToro, also said earlier this week that "for many crypto assets such as
bitcoin and ether, the long-term story has not changed." According to him, we would simply observe
more marked increases and decreases.
Institutional investors still in place
According to Philip Gradwell, chief economist at Chainalysis, a specialist in blockchain analysis, the
current fall does not necessarily mean the end of the bullish period. It would also not be comparable to
the drops experienced by cryptocurrencies in March 2020 and December 2017. The sales of assets
that we observe today would mainly come from new individual investors, perhaps more inclined to
“sales panics”. Institutional investors (who lend credibility to the ecosystem) would not sell as long as
they simply bought less.
A “normal” fall
The entrepreneur and major investor in bitcoin Michael Saylor also claimed that entities under his
control owning 111,000 bitcoins “had not sold a single satoshi”, about the smallest unit of measure of
bitcoin. Anthony Pompliano, the co-founder of crypto-asset manager Morgan Creek Digital and a
staunch supporter of bitcoin, also said the fall in cryptocurrencies today was “something normal”,
with bullish periods being “highly volatile”.

Despite everything some cryptocurrencies have resisted.

During the sharp fall of the majority of cryptocurrencies, some, on the contrary, seemed to progress.
This is particularly the case of Cardano ADA, the digital currency of the Cardano project which, over
a week, has gained around 7%. The Cardano project takes the form of an open-source blockchain and
uses the proof-of-stake protocol, when bitcoin, for example, uses the more energy-intensive proof of
work protocol. Polygon (or Matic), another proof-of-stake-based project, also skyrocketed over a
week with an increase of no less than 76%. Would proof of stake be part of the solutions to guarantee
the stability of cryptos? The Ethereum Foundation, which develops the world's second cryptocurrency
Ethereum, in any case, announced on May 18 its intention to switch completely from proof of work to
proof of stake in the coming months.

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