Bitcoin and other major cryptocurrencies began a shaky climb up this week after a cataclysmic price drop that twitter users have now termed “#cryptocrash”.
The drop saw roughly $1.3 trillion USD wiped off the total coin market cap, and was reportedly driven by concerns over the environmental impact of cryptocurrency mining, as well as a temporary bitcoin mining ban in Iran and (yet another) bitcoin “ban” declaration from China. Bitcoin lost a third of its value in a week. Ethereum dropped by 37%. Most alternative cryptocurrencies were not spared, shedding upwards of 30% of their value in moments --- Ripple dropped 50%, Litecoin by 69%, and Bitcoin Cash was down 70%.
Bitcoin FUD spread following a recent announcement that Chinese financial institutions and payment providers would be prohibited from providing services related to cryptocurrency transactions.
As several bitcoin maxis have pointed out, this isn’t the first time the crypto market has experienced volatility following Chinese regulatory crackdowns. China’s national bank banned financial institutions from handling bitcoin transactions back in 2013, and in 2017, Chinese cryptocurrency exchanges were shut down by the government.
It’s notable that in both cases the market dipped, only to recover and reach new all-time highs within the next year.
Over in Iran, rolling blackouts have prompted authorities to impose a ban on cryptocurrency mining until September 2021, citing the energy-intensive bitcoin mining industry’s role in causing power outages across the country. Iran’s national power distribution company announced soon after that licensed cryptocurrency mining facilities had voluntarily shut down their operations to relieve the strain. Analysts disagree, however, about whether bitcoin mining is responsible for the power outages.
Iran is regarded as a global energy superpower. In 2019, the country’s overall power generation capacity was 80,000 GW. President Hassan Rouhani noted that although legal crypto mining operations in Iran consume roughly 300 MW of electricity, illegal operations utilize up to 2,000 GW. Given those figures, Bitcoin mining (both legal and illegal) accounts for around 2.5% of the country’s total electrical consumption. Extreme drought and surging electricity demand in summer have also been blamed for present electricity shortages in Iran.
Pressure from the U.S Securities and Exchange Commission (SEC) urging for legislatory regulation of the digital currency further drove bearish sentiment on cryptocurrency, leading some to pronounce this asthe definitive end of bitcoin. The sell-off that followed these events saw over $1 trillion USD wiped off bitcoin’s market cap. Not pretty, but also not the worst volatility we’ve seen in bitcoin’s 13-year history.
Now, reports that several British banks are temporarily prohibiting customers from sending funds to cryptocurrency exchanges, citing the potential of cryptocurrency-related scams as a justification for their actions, has many of us wondering what’s next. More regulation? More uncertainty? Is the crash only beginning, or could we see another all-time high before the end of the year?
Altcoin season saw its peak in May with Ethereum, Cardano and Dogecoin breaking previous price records to establish new all-time highs. Despite the drop, altcoins like Ethereum, Cardano and Dogecoin have recovered somewhat, and are currently trading with a level of stability. Ultimately, Bitcoin’s influence over the cryptocurrency market as a whole could determine whether the positive trajectory for altcoins remains a sustained trend.
Elon Musk, the CEO of Tesla, also made headlines after revealing in a tweet that he’d had a meeting with North American bitcoin miners, during which “potentially promising” commitments were made to “publish current & planned renewable usage & to ask miners [worldwide] to do so”. A noteworthy development, given that the environmental impact of bitcoin has been a recurring source of concern within the crypto mining space.
Skeptics have speculated that Elon Musk could be attempting to establish himself in the cryptocurrency space for his own gain. After all, it has been widely acknowledged that Tesla’s bitcoin holdings are what protected the firm from underperforming in the last quarter.
However, it appears that the Tesla CEO still holds sway over the crypto community. Bitcoin’s price surged to a little under $40,000 as a result of the tweet, a surprising reversal of events given that cryptocurrency aficionados had previously turned against their former idol for his apparent love-hate relationship with bitcoin.
Optimism from high-profile bitcoin investors such as Ark Investment Management CEO Cathie Wood and MicroStrategy’s Michael Saylor have aided the crypto market’s rebound, with Ark Invest’s CEO telling Bloomberg that she still expects Bitcoin’s price to grow to $500,000. “We go through soul searching times like this and scrape the models, and yes, our conviction is just as high […] You never know how low is low when a market gets very emotional.”
Overall, the market is still evolving. For people who invested in cryptocurrency through the 2017 crashes, this volatility is nothing new, but new investors are shaken up. Many analysts, however, see the recent drop as a much-needed price correction.