Several major and minor cryptocurrencies have been seeing a paramount correction since the past week. Over 1 trillion dollars have been swept off just in the past week. All major cryptocurrencies like Bitcoin, Ethereum, Binance Coin saw a fall of over 40 per cent during this time frame. The smaller coins were hit even more. This fall was a result of a series of bad news for cryptocurrency lovers. Let us decode how the events triggered this bloodbath.

Tesla Stopped Accepting Bitcoin for its Vehicle Purchase

The first tweet which gave the market its first shock was Elon Musk’s statement which quoted that “Tesla has suspended vehicle purchase using Bitcoin over the use of fossil fuels in Bitcoin mining.” This sparked a lot of uncertainty in the crypto market. Since many crypto buyers do not understand the market, they saw it as a negative sign for the whole industry. A lot of heated discussions erupted due to this.

Ref :

Tesla & Bitcoin pic.twitter.com/YSswJmVZhP

— Elon Musk (@elonmusk) May 12, 2021

Elon replied “Indeed” to one of the tweets that quoted “With the amount of heat Elon is getting, he might sell off all the Tesla holdings and we would only know when the second-quarter results are out.” This fueled the real spark in the market, and we saw a massive drop of around $400 billion within one day. There was a small recovery when Elon tweeted an image quoting “don’t panic”, but the harm was already done.

Ref :

Bitcoiners are going to slap themselves next quarter when they find out Tesla dumped the rest of their #Bitcoin holdings.

With the amount of hate @elonmusk is getting, I wouldn’t blame him…

— Mr. Whale (@CryptoWhale) May 16, 2021

China Coming Out With a Series of Grim News:

The market was not even recovered by the Tesla frenzy when some news was reported by a major news agency claiming that “China has banned financial institutions and payment companies from providing services related to cryptocurrency transactions and warned investors against speculative coin trading.”

The National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China reiterated their stance on banning crypto services. There was nothing new in this news as the same was banned since 2013, but this news worked out like fuel for the massive selloff.

Another newsletter erupted claiming an explicit ban on mining of Bitcoin in China which caused even more panic as more than 50 per cent of the mining of Bitcoin happens in China. This was followed by some mining companies like BIT Mining limited announcing investments in crypto mining firms in Texas stating that they will maintain the security of bitcoin mining.

Major exchanges like Huobi and OKEx later declared they will stop selling mining machines in China and immediately stopped custody as well as derivatives trading in China for cryptocurrencies triggering even higher sell offs.

Fear and Greed Index:

The Fear and Greed Index was at all times high which was a clear indication of the market correction. It was as high as 73. In the recent week, it has been reset to Extreme Fear with all the bad news coming out during the week. The retail investors after losing out on their investments are in extreme fear while they are investing in the crypto market.

Exchanges Went Down due to Massive Volumes:

When we were seeing a massive sell off in the market, major exchanges like Binance, Coinbase went down adding to the ever-increasing fuel of mass panic, and investors were ready to get back whatever was left of their capital which triggered the market to plummet even lower.

An Unconfirmed Leak:

An unconfirmed leak claims this was a planned dump into the market, as it can be seen from this thread that all the events went exactly as stated. Bitcoin plummeted to 30,261.7 and showed a V-shaped recovery. This emphasises the fact that we need a desperate regulatory oversight. (Link to the source: https://boards.4channel.org/biz/thread/35710754).

The above-stated events led to the bloodbath which signified that the market will remain bearish in the short term. It also denoted the dire need for an oversight body to prevent the interest of smaller investors.

The impact of few people in the market, like Micheal Saylor, Elon Musk, and Justin Sun calls for investor education, as many retail investors acted irrationally without interpreting the news and falling prey to the sell offs.

Like there is always a silver lining after storms, there was a sanguine note for the long-term weather. Major Chinese firms used non-renewable energy in mining activities and hence we will move towards a greener Bitcoin in the future. Also, all the systems which were built on blockchain and were decentralised like Compound, Uniswap did not see any downtime and processed billions of dollars worth of transactions without any issues which is a clear indication of their rise in the future.

The author is IIM-Alum, a Digital Asset Researcher and a Blockchain Trainer

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.