Elon Musk’s comments and Chinese authorities bank ban trigger a crypto market rout

By Tsering Namgyal

Bitcoin has dropped by more than 35% from its record high in an overall crypto market crash that had wiped out more US$600 billion in market capitalization over the past week.

Amid a barrage of negative news that has hit the crypto the latest one includes China’s ban on its financial and payment institutions from providing crypto services.

Expert attributes the drop to various factors, most prominently Elon Musk’s tweet about Bitcoin’s energy consumption and his statement that Tesla may not accept Bitcoin as a payment as long Bitcoin’s does not resolve the energy issue.

“Elon Musk’s comments on the ecological impact of Bitcoin mining have caused real dispute and given his status a lot of people are taking his word as gospel, which can be detrimental to the crypto space,” Gunnar Jaerv, COO of First Digital Trust, Hong Kong’s leading digital custodian.

He believes that Musk’s argument is wrong about the environmental implications of Bitcoin.

“The public are paying attention to Musk but we are already witnessing substantial proof that this argument is false,” he said.

Analysis suggests that 76% of all Bitcoin mining utilizes renewable energy, he said, and there are a plethora of other blockchains and digital assets that will weather this storm because they use sustainable proof-of-work protocols. For example, the UK-listed crypto mining company Argo Blockchain announced last week that they had purchased two data centers in Quebec which are powered almost entirely by hydroelectric energy.

Ganesh Swami, CEO of Covalent, a blockchain data provider, said: “In the bull market, seeing these big drops is common. The last time we saw a bull run, Bitcoin dropped at least half a dozen times by 20-30% before it went to the then all-time high,”

“Elon’s tweet sparked a conversation around Bitcoin’s energy consumption, and I think it is good that people are at least aware of the nuances,” said Swami. “But this isn’t new, and there is far more that is happening in the space in terms of development for it to stay like this.”

Antoni Trenchev, co-founder and Managing Partner of Nexo, a leading financial institution for digital assets said it is common for the market to see big drops during bull markets, adding that the market has plunged by 20-30% half dozen times before it went to an all-time high.

“Every bull run within crypto has seen five to seven declines over 30% and this cycle is no exception,” he said.

Ethereum, Trenchev believes, is at a different stage in its cycle — the market seems to be struggling to stop it in its tracks. He said he had seen a lot of clients roll out of Bitcoin into Ethereum because, on the surface, Bitcoin is now where ETH was a few months back: it hit $2K in February and then failed to reconquer that territory for more than a month, he said.

Similarly, Bitcoin didn’t secure stable support above 65K and has retracted to the low $40,000s. More than anything, however, what this undeniably large correction and those before it proves is that the crypto market is resilient, that it’s a long-term game ill-suited to the weak-handed, he said.

Trenchov said that the Chinese government’s attempt to crackdown on cryptocurrencies is aimed at lowering the appetite for cryptocurrencies and boost interest in China’s own state-backed assets.

“In the long term though, it’s nothing more than a tremor on the otherwise defiant crypto world’s surface,” he said.

Kadan Stadelmann, CTO of Komodo blockchain, has an interesting viewpoint, on that he believes intricacies within the crypto market than just merely on haphazard comments from Elon Musk and Chinese crackdown as the reason behind the recent rout. He wonders if Bitcoin is losing its dominance and if altcoins will gain more momentum as they offer Defi and NFTs.

While Bitcoin still drags down the market, though Bitcoin’s dominance has dropped to its lowest point in over three years, he said.

He believes there is a market “shake out” happening with the institutions or whales are selling big amounts, or even millions of dollars worth Bitcoin at a time to push the prices down.

“Retail investors then capitulate and sell, driving the price to a bottom. Then, the large players are scooping up cryptocurrencies like BTC, ETH, and various altcoins at a cheap price,” he said.

On the whole, the market is likely to make a comeback sooner, believes Swami of Covalent. There is a lot going on for the blockchain market, he said, including hundreds of projects getting built across various blockchains, key crypto segments like DeFi up at $71 billion of total value locked, NFTs which are gaining prominence in mainstream media, Ethereum getting multiple efficiency updates and moving to PoS (proof-of-stake) in the upcoming months, he said.

“It is paramount that those in the crypto space spend sufficient time researching facts before believing any social media discourse, especially given the reactivity of so many of the comments that has driven the crash of both Bitcoin and Eth, said Jaerv of First Digital Trust.

James Anderson, CEO of RioDeFi, a blockchain technology bridging traditional and decentralized finance via an interoperable blockchain ecosystem, believes: “There is much more to blockchain than big gains.”

“It is logical for investors to seek a more diversified portfolio that mitigates the risks of volatility we have seen with Bitcoin this week,” he said: “There is much more to this industry beyond Bitcoin, and this market tumble will only highlight what other, more stable, digital assets there are on offer.”


Image credit: Pxhere

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