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Cryptocurrency markets were in for a doomsday-like event on May 19, with major currencies tumbling rapidly, wiping off as much as $1 trillion from their valuations, which had hit a record high of more than $2 trillion in recent times.
While many analysts seem to think that the crypto bubble, which grew unsustainably and without rhyme or reason for some time now, is finally bursting, crypto investors watched in horror as the markets fell significantly, leaving major Indian crypto exchanges like WazirX and others crashing under extremely high transaction volumes.
Bitcoin was the worst affected, having fallen to 37,635.89/coin with a 32 percent dip in its value over the last week. Dogecoin registered a fall of almost 20 percent over the last 24 hours, and even the fundamentally strong Ethereum was down around 21 percent, trading at $2,700.
Winds of unfavourable changes
It all started when Elon Musk, the mercurial Tesla founder, announced that his company will not be accepting bitcoin payments for its cars, given the disastrous energy consumption trends involved in its mining. While he later clarified that the company will not liquidate its existing stake in bitcoins, worth $1.5 billion, the currency fell to around $46,000. It was earlier trading at around $54,700 a coin.
Neeraj Khandelwal, CTO, and Co-founder, Coin DCX, saw this as a temporary price correction. He said, “Bitcoin is a store of value and should be treated as an asset class with a long-term forecast on gains. Price corrections are a part and parcel of every asset class and bitcoin is no stranger to the same. If you look at the YOY appreciation in Bitcoin's prices you would see steady growth. Bitcoin's stellar rally from its early April 2013 lows of $50 to have appreciated by over 1300 times to its recent high of $66,000 in mid-April 2021 is testimony to its growth. Recent comments by industry stalwarts like Elon Musk have contributed to some corrections in the pricing, but this is not to be seen as permanent.”
There was some investor respite on the Finance Ministry’s positive stance on cryptocurrency in India on Wednesday, given that there were talks of a new panel being constituted that would engage with crypto stakeholders, study the viability of blockchain technology and find ways to regulate cryptocurrencies as a digital asset instead of a currency. The panel, still in its infancy, could also be tasked to implement the digital rupee idea, as proposed by RBI. The crypto industry welcomed this move, saying that the blanket ban suggested by the 2019 Subhash Garg committee report was outdated and redundant and that this sets a positive mandate for the Indian crypto industry.
Delhi-based trader Shivam Srivastava, however, does not have high hopes from this move, believing that the freedom so granted will be limited.
China bans crypto trading
But it was China, the biggest hub of cryptocurrency mining and trading in the world that dampened the global cryptocurrency market spirit by banning all major players in the financial space to engage in cryptocurrency-related products and services. Transactions, insurance, and derivatives trading around crypto were banned by the country, along with a warning to stay away from the same, in view of the rise in speculative cryptocurrency trading. However, market experts were confident of this as a precautionary measure.
Per Khandelwal’s analysis, “ With the immense interest from the investors as well as crypto developers’ communities across the world, we feel that the situation will stabilise soon, and the government bodies will be able to see the prospects the crypto industry offers. In terms of investment, we have always maintained that investors should focus on the fundamentals and the long-term nature of the asset class rather than looking at short-term volatility.”
Add to that Vitalik Buterin, who co-founded the cryptocurrency Ethereum announcement of the destruction of 90 percent of his Shiba Inu holdings and donating the remaining and it's easy to understand why the crypto world is in turmoil. Till now, 40 percent of Shiba Inu tokens, which amount to 410 trillion coins worth $7 billion have been burnt or made inaccessible to the public. However, experts' advice remains to wait out the storm and consider the long-term impact of these actions.