Last May 19, 2021, the crypto market saw one of its worst days yet as the world’s largest cryptocurrency tumbled down a record-breaking low. This cataclysmic change in tide has in turn shaken the foundation on which bitcoin has built, not just for itself, but for the crypto community at large.
Since that fateful Wednesday when bitcoin prices came crashing down and wiped more than 50% of bitcoin’s reserves, the future of the industry seems more uncertain than it has ever been.
Cryptocurrencies the likes of Bitcoin and Ethereum, seemingly well-established and impenetrable forces of digital currencies, demonstrate just the opposite in the past few days. What this has to say for lesser mainstream coins like Dogecoin, however, have been far more destructive – crashing at more than 50% in a matter of two days.
While the basket of currencies like Ether and Dogecoin were the ones to face the brunt of the deterring force, Bitcoin was the one who took home most of the greatest losses. From its stable high in mid-April of being valued at over 65,000 to 35,000 USD in just five weeks.
There is some degree of taciturn loss to be expected from such a volatile market characteristic of crypto trading and bitcoin minning, however, this unexpected downturn of such magnitude was still surprising nonetheless.
A bird’s eye view of the market
It goes without saying the cryptocurrency market has taken on a chameleon type of being when it comes to serving its purpose. For investors, it can serve as a means to an end of partaking in a worthwhile long-term investment to grow their respective portfolios.
For onlookers not particularly invested in the space, the buzz surrounding the industry can be attributed to some form of naked speculation, an almost always trending topic they chance upon without really knowing the mechanics of how such interest in the field came to be.
But to others, the crypto space is more than just speculations. It is, in itself, the groundwork of a new financial system in the works. It is redefining what the traditional payment system looks like, evolving previously established financial institutions to one that is more in keeping with the times as well as inclusive of more socioeconomic situations.
Under extreme stress, the system has endured through far worse throughout its decade-long tenure. Many problems surfaced, more judgement was thrown at its unorthodox method of finance – but still it has persevered, especially Bitcoin.
Due to the mishap of Wednesday, the bitcoin and crypto “fear and greed index”, wherein a 0 value means extreme fear and a 100 value means extreme greed, all fell to a staggering 11. The index takes into consideration market volatility, volume, social media sentiment, media trends, etc. all of which have suggested more or less the same outcomes: worried investors.
Where is this coming from?
Because of its enduring nature, cryptocurrencies have witnessed a long bullish rally over the past few months. A majority of middle-grade cryptos have, for the first time, reached their long-awaited all-time highs due to the help of retail investors pushing for their success.
The first cracks began to show when Elon Musk, Tesla Inc. and SpaceX Ceo, released a statement issuing Bitcoin no longer being an acceptable payment method for his companies. His decision was supported by claims of environmental grounds, in that the worrying amount of carbon emission and energy consumption involved with mining bitcoin far outweighed its integration into the companies’ financial models.
To add fire to the fuel, China has also issued a new policy regarding its digital assets. Through this new policy, it ban’s the country’s financial institutions including banks and online payment channels from performing any crypto-related transaction for clients. In a nutshell, China does not wish to involve its patrons with buying, selling, registering, trading, or anything to do with cryptocurrencies in general.
They have stated the reason for this recent policy as believing cryptos do not hold any tangible value of their own, as they are simply digital currencies residing on the Internet and not managed by any reputable financial institution or bank.
What happens next?
With all the whirlwind that has taken the industry by storm over the past few months, the future of cryptocurrency remains uncertain. It should be worth noting that at the end of the day, cryptocurrencies are still indeed an experimental project, even with its historic achievements over the decade.
The nature of cryptocurrencies lies in the value proposition of the mode of value. They are perverse to the traditional currency model where the country’s central bank holds the responsibility of assigning value to the national currency, and by extension its monetary benefit.
The same cannot be said for cryptocurrencies, as they still aren’t governed by any recognizable national institution that can bestow upon them the same monetary value as one does with a national bank.
The peak of popularity enjoyed by the cryptocurrencies is therefore due to the unregulated nature of the currencies coupled with an unlimited supply as opposed to the limited money supply in the traditional value chain. Such losses could discourage new entries to the market or possibly push them towards the fledgling digital fiat with a guarantee of stability and store of value.
However, with all being said, the errant nature of the market and its high risk, high reward dynamic with its investors have been its main selling point to this day. This irrefutable fact will take more than just the downsizing of a few charts and a drop in numbers to shake.
The future is still unknown and uncertain, and investors could stay away from high-risk assets to keep their capital intact. Although cryptocurrencies, especially Bitcoin, have provided multi-bagger gains in the past – there is nothing to stop their value from going from zero to hero or vice versa.