Crypto Global

Price drops in the crypto market

May 25, 2021

Did this crypto crash end the bull market prematurely? Is Bitcoin dead and where are we moving from here? We are sure that you were all very well informed about the huge correction.

The market needs these moves and corrections to move back up healthy. This is not entirely uncommon. These larger corrections of more than 30 percent to 40 percent, maybe even 50 percent, are a perfectly normal phenomenon that occurs during a bull market.

The fact is, there is a lot of panic in the crypto market right now. The Bitcoin price has fallen sharply in the last few days and can now be bought again below 40,000 USD. What many have forgotten is that we have also seen several Bitcoin price drops in the past few months. Bitcoin fell around 26 percent between late January and early February 2021, and it took about two weeks for Bitcoin price to recover. Also in late February there was a nearly 25 percent drop, and at the time of writing, Bitcoin is down about 40 percent from its all-time high of $63,000. Several hundred billion dollars were deducted from the total crypto market capitalization. Could that mean we will soon have another crypto winter?

In this newsletter we would like to explain the two main reasons why cryptocurrencies have now crashed:

1. Elon Musk suddenly changed his mind about Bitcoin because Bitcoin is not climate friendly. Much criticism was also expressed in the bull run phase of 2017 from well-known bankers and Bitcoin opponents. Bitcoin was then referred to as the Ponzi scheme or hoax, which then led to a drastic drop in prices.

2. The next reason for the drastic setback we are currently experiencing is that China has banned the Chinese financial industry from doing cryptocurrency trades. Financial institutions are not allowed to trade Bitcoin or other cryptocurrencies. This is justified by the fact that it is related to maintaining the financial order. China's ban means that institutions there, including banks and online payment channels, will not offer their customers any services related to cryptocurrencies.

Such news can temporarily affect the price, but in the long run it is hardly possible. China took action against Bitcoin four years ago, which didn't work. Bitcoin bans are doomed to fail from the outset. At the same time, strangely enough, Chinese courts found a few years ago that Bitcoin is a legally protected asset or that Ethereum can be viewed as property with economic value.

As a reminder: According to the cryptocurrency company Chainalysis, around 20 percent of the existing 18.5 million Bitcoin - currently worth around 143 billion US dollars - appear to be in lost wallets. Although 900 bitcoins are added every day, it is important to know that most crypto investors buy and hold bitcoin. So there is only a small part of the bitcoins in circulation that are traded. And this part affects the price right now.

As for the question of whether the crypto winter has already started, one thing is a fact. And this fact seems to be a big advantage, as Bitcoins can be bought cheaper in the crypto winter.