🧨Bitcoin’s highest correction since last year – reasons
What a week! FUD, correction, regulations, and unclear media headlines. Although some sold, many crypto believers used the moment to buy some crypto on sale.
During the week Bitcoin, the largest cryptocurrency by market cap went to its highest correction since last year. The price dropped to $30,681.50 according to CoinMarketCap which is 50% down compared to the ATH at $64,863.10. Along with price the domination of Bitcoin fell – from its January’s rate at 69.71 at the moment of writing the rate is 39.97.
On the other hand, Bitcoin was not the only cryptocurrency that had a bloody week. Ethereum had to forget its highest records at $4,362.35 and set to its lowest point at $1,952.46. The rest of the market was red as well.
Perhaps many of us started thinking about what caused this catastrophic sell-off. So let’s jump to the main reasons.
✍️Author: Militsa Dimitrova👒– follow me on Twitter
Of course, what would be a drop without some news from China? During the week Reuters published an article that said that the country bans all cryptocurrencies. The real news is less dramatic than it seems. The Chinese bank association and the association of the payment providers just reiterated the rules published in 2017 and warned the crypto investors that the digital assets have high risk.
Even though the wrong title made many shake from fear especially because of the current fluctuation of the market.
The second news from (you know the country) came last Friday and they were more serious than the first title. The Chinese vice premier, Liu He, said “We should be more alert and look for potential risks”. “We should crackdown on bitcoin mining and trading activities and prevent individual risks from being passed to the whole society”.
According to CoinDesk, this is one of the most high-profile warnings against cryptocurrencies in recent years. One survey shows that China has 75% of the hash rate, USA has only 7%. If Chinese arthritis restricts the mining industry, many analysts expect a 30% drop in hash rate and the security of the network as well.
The significant drop in the price wiped out every investor who was betting on the crypto market and its growing price. The correction liquidated 775 000 accounts for more than $10B.
The fact that $90M worth of Bitcoin was used as ransom payments for the attack against Colonial Pipeline again raised statements that except risky Bitcoin is used for crimes.
The Colonial Pipeline is the largest pipeline system for refined oil products in the U.S.
After Tether and the New York Attorney General settled, one of the conditions that the company behind the stablecoin has to cover is to announce its reserves every Q. In the report for Q1 the business showed a big percentage in cash (great) and commercial paper and various loans (not so great). The last two are liquid assets but it depends on the issuer. Tether didn’t give further information for the issuer in the report.
Many of the stablecoin’s haters started to ask questions and the Attorney General asked for new financial reports.
Last week Elon Musk criticized Bitcoin for its ecological footprint on the environment. But after the news that Tesla will stop accepting BTC as payment for its products, Musk came back on Sunday to spread more FUD. The second “Musk ”drop followed after the CEO answered with “Indeed” to exactly this tweet.
“Bitcoiners are going to slap themselves next quarter when they find out Tesla dumped the rest of their #Bitcoin holdings”
The investors started to wonder if Tesla sold any Bitcoins? The price continued to plunge. A little later Musk came back to say that the company didn’t sell any of its Bitcoins but nothing changed.
📝To sum up:
After all of these reasons, the most significant is the fact that China is thinking about regulating the mining sector. The country nationalized Ant Group. The next move is to reduce the possibility of other currencies (crypto) staying in the way of the digital yuan. A big number of the miners are concentrated in China and if the restrictions come true that hash rate will go down.
In the short term, this will reduce the security of the network. On the other hand, it will allow many new miners because the process of verifying transactions will be easier (the process will consume less energy than for a certain period).
Such actions will separate the domination of China’s hash rate and the network would become more globally distributed. This will help Bitcoin to become an even more decentralized asset. The US has the potential to grow its mining industry – some companies started investing in mining centers in Texas.
🧨Regulators and their point of view – what the OCC, SEC, and Treasury said about crypto this week
After the news from China, it is time to shift to the USA. During the week we heard that the controller of 📌OCC, Michael Hsu, called for a review of the cryptocurrency guidance issued by the institution under the prior head (Brian Brooks). One of the actions was the note that the authorities can provide cryptocurrency custody if they have a banking license.
“My broader concern is that these initiatives were not done in full coordination with all stakeholders” – said Hsu. According to him, there was no regulatory strategy.
The second announcement came from the 📌SEC Chair Gary Gensler – “We need rules of the road and a cop on the beat to protect everyday investors.” Earlier this month he said that the regulations in the space will increase customer’s confidence and protection.
On top of that, the 📌U.S. Treasury added an update to Biden’s tax plan. The report says that the crypto exchanges are required to report every crypto transaction over $10 000 to the IRS. According to the announcement, their fear is tax evasion, the new technologies, and the fact that the IRS hasn’t got access to them due to “resource constraints”.
Lastly but most positively the 📌CEO of Carlyle Group, David Rubenstein, said that crypto “is here to stay” and something more. Carlyle Group is a multinational private equity, alternative asset management with more than $250B AUM. If this is not surprising enough – this will be – Jerome Powell was working for the business for 8 years.
According to Rubenstein, as a new asset, the crypto will go through many ups and downs. “If you’re not prepared for that, don’t go into cryptocurrency”. About the question for the government to ban crypto, he said that this move is “unrealistic”.
📝To sum up:
Let’s zoom out and see the whole picture.
First, the regulations are not a ban. In this case, the US would like to draw the borders of the industry and give more clarity to the companies that are involved in the space and the ones that will come in the future. Till now there are no regulations and some businesses may go through hard times trying to investigate the right law for them.
Second, the lack of regulations opens the space for more scam projects. Some people earn a lot, others lose a lot. As we know the bad news spreads faster especially when it comes to money.
The scammy projects give a negative effect on the whole industry – the newcomers are thinking just for the profit and try to create the next scam. In fact, some kind of regulation can help these projects disappear or their creator will have to try to work on a better project.