Has the cryptocurrency bubble definitely burst? It is a recurring question in financial markets. Every Bitcoin price crash is followed by a stream of articles expressing doubts about its future. Too abstract, too volatile, too opportunistic. So far, every drop has resulted in a staggering revival. Over the past few weeks, thousands of investors must cling to this hope. Because it’s not just Bitcoin – all cryptocurrencies are going under.
Perhaps the question finally makes sense.
The box. To understand how bad the cryptocurrency business looks, the simplest thing is to look at this graph, shared yesterday by Drew Harwell, a journalist for the Washington Post. All values are trading down, they have gone into the red. Bitcoin is left at this time 20% on its price of a week ago. If in April it exceeded the $ 65,000 barrier, today it barely touches $ 40,000. Ethereum drops another 30%; Dogecoin, 10%; ICP, 34%; Polkadot; 25%; Uniswap, 32%; Litecoin, 33%. The list of crashes is endless.
Pretty chill day on the crypto markets pic.twitter.com/WvvKqldHen— Drew Harwell (@drewharwell) May 19, 2021
Why? Nobody knows exactly. A few months ago Bitcoin seemed to have once and for all passed the spectrum of the “bubble”. There are several theories about the reasons for the sudden crash: Tesla’s refusal to accept cryptocurrency payments; Elon Musk’s erratic statements about his disinterest in Bitcoin, after months of inflating its price; the ban on all cryptocurrencies in China, announced in 2013 and confirmed in 2017; or simply by the natural flows of the market. As a financial expert explains in this report:
Ultimately, the price falls for the same reason it rose in the first place: it is in the hands of speculators who lack fundamental reasons to own it, based on reality or some definition of value. Speculation works back and forth and reflects soft hands when things go wrong.
Dancing to the sound . Elon Musk’s role in the rise and fall of cryptocurrencies is indicative of the irrational functioning of the market. When Tesla announced on May 12 that it would no longer accept payments with Bitcoin, the currency went from $ 54,000 to $ 49,000. In a day. Since then it has maintained a downward trend. Four days later, Musk suggested that he had divested his Bitcoin shares. The price went from $ 47,000 to $ 44,000. The next day, Musk denied the major and assured his followers that he had not moved his positions. The price ranged from $ 42,000 to $ 45,000. And so every day.
The optimists . Not everyone believes that we are facing the definitive implosion of cryptocurrencies. “Corrections in the cryptocurrency market are a common phenomenon. It does not mean, however, that in the future prices will continue to fall,” explains another analyst at MarketWatch . Translated: what we are experiencing this week is but one of the infinite boom / bust loops that plague cryptocurrencies by definition. Being speculative instruments, they are more prone to market emotions . To doubts or assurances.
Some data : during the past decade the collapse of the value of a share over its maximum peak is around 50%. Bitcoin has lost around 40% since its record in April. Volatility is the norm. Bitcoin has seen changes above or below 5% over the last decade on 751 occasions. The S&P 500, the benchmark index in the US, has undergone just 150 changes in its entire history. Bitcoin has suffered 47 rises and falls of over 20% since its existence; the S&P 500, one.
But, but Hence the hardcore cryptocurrency enthusiasts are now clinging to the ” hold or death ” that we already live with GameStop. Since everything depends on moods and perceptions about the behavior of the market, not about a real and tangible business, it is essential to appease the spirits of investors, many of them inexperienced and small, to limit losses. And trust that the upward cycle will return in a few days or weeks. None of this means that the market will recover.
Bitcoin and the rest of the cryptocurrencies could have reached the end of the road, the point of rupture of the bubble … Or towards a stabilization in the price, as the trend of the last hours points out. After surpassing $ 347 in January, GameStop is trading today at $ 168 . We have all forgotten about that. But in December his stock was worth no more than $ 13. Whoever entered then continues to earn a lot of money.
Posting this for no particular reason – a timeline of bubbles pic.twitter.com/EGrOM8Diwz— Benedict Evans (@benedictevans) May 19, 2021
Fear. In the case of Bitcoin, the problem is not so much by lifelong investors but by those who entered at the beginning of this year, above $ 40,000 or $ 30,000, and contributed to relaunching its price. Today they fear losing their investment. The same mechanism that led them to raise cryptocurrencies can lead them to sink them. Dogecoin, after all, was a meme that grew at 19,000% per year and inadvertently turned into more than a joke. One that in the next few days may lose all the grace it once had.