The crypto market started this year with great promise after amassing massive gains. Bitcoin, for example, surged from around $17K in November 2020, and its value grew incredibly to around $63,000 in April this year. The entire cryptocurrency market cap grew to over $2.5 trillion at its peak in May, but this has crashed and crumbled to around $1 trillion.
In June, the market managed to pick up the pieces and recover from the losses, but the gains have not been very promising. Just recently, Bitcoin crashed to below $30K for the first time this year and even made a death cross before making a slight recovery. Likewise, Ethereum, the largest altcoin, is still trading at below $2000 after falling above $4300.
Crypto investors have been worried about these numbers, which show that the market’s volatility is now higher than ever.
What is Causing the Crash?
Tesla’s CEO, Elon Musk, mainly caused the crash in the crypto market after claiming that the electric car manufacturing company would no longer accept Bitcoin payments. However, the crash was further fuelled by concerns of Bitcoin mining on the environment.
China, a major mining hub, has been imposing restrictions on Bitcoin mining, citing the negative effects of the activity on the environment. Some provinces that have announced plans to halt mining operations include Yunnan, Sichuan, Inner Mongolia and Xinjiang.
These restrictions have been causing turbulence in the market and have been mainly affecting Bitcoin. Bitcoin holds immense support for the broader cryptocurrency market, and a crash in its prices causes a crash in the prices of altcoins.
This year’s growth has raised concerns about how this market can be regulated to protect investors and economies. The US has severally announced that it was looking into creating a new regulatory framework for the crypto market. These regulations have caused a stir in the market because they will affect crypto firms and erode the anonymity of the crypto market.
Should Investors be Worried?
Most technical indicators are currently screaming for traders to sell off their holdings, creating panic. However, other investors are still bullish with claims that the market will recover its lost gains and perform better than it did in April. Of course, the crypto market has crashed before, and hence this is not anything new.
One of the reasons given for the recent market crash is the crypto winter. The crypto winter is a time when ‘outsiders’ drop their holdings because they no longer believe in the market. Outsiders, in this case, are investors who do not really believe in cryptocurrencies but only invested with the promise of making great returns.
A previous crypto winter was reported in 2018, and if this year’s crash is similar to what happened then, the market will recover. Besides, it shows that the current volatility is not just a crash but also a price correction after cryptocurrencies were overbought.
Crypto Volatility – Then and Now
There is a huge difference between the current crypto market and the market that was two years ago. Back then, many institutions and countries were against cryptocurrencies by associating their use with money laundering, drug dealing and terrorism. However, the current market is more mature, and it has immensely evolved.
This year, we have seen institutions such as major Wall Street banks jumping into the cryptocurrency ship. These institutions had previously dismissed cryptocurrencies as a form of investment but have embraced the assets after growing demand from investors.
Moreover, digital assets have also gained use as a means of transactions after being adopted by payments firms such as PayPal, Visa and MasterCard. This adoption shows that while the market may be currently crashing, it is not going anywhere because it has found a place in the financial sector.
The main concern now is the effect of Bitcoin mining on the environment. While this is a controversial topic, some measures have been put across to transition the activity into the renewable energy sector. Elon Musk had even earlier stated that if 50% of Bitcoin mining transitions to renewable energy, Tesla would adopt Bitcoin for payments again.
Such sentiments show hope for the future of cryptocurrencies because they will halt crackdowns on mining and stabilize the market. What is certain is that blockchain, cryptocurrencies have rapidly grown, and they have a future in the financial market.