The cryptocurrency industry which has experienced a huge boost since January 2021 has been crashing for several days now. If you are are interested in knowing why this is happening, this post is for you.
Earlier last week, Elon Musk announced on Twitter that Tesla will no longer accept Bitcoin for vehicle purchases due to concerns about the environmental impact of bitcoin mining. Bitcoin mining is an energy intensive process that consumes a lot of electricity. As at 2020, the whole bitcoin network consumes about 63 terawatt-hours (TWh) per year (120 gigawatts (GW) per second).
The announcement by Elon Musk sent the price of bitcoin down by over 30% as well as other altcoins. He however, stated that the electric carmaker did not intend to sell any of its Bitcoin and will also reinstate crypto-currency transactions once it is able to choose a coin that is environmental friendly.
Why will a single person or company affect the crypto market? Elon Musk is not just your normal person. He is one of the richest man in the world, in fact, he was briefly the world richest man some weeks ago.
Okay, he is rich and then what? He is also an influencer in the crypto and tech community. For starters, his company Tesla invested $1.5 billion earlier this year. The investment and the announcement alone sent bitcoin price soaring over 30% high. He also follow that with news that Telsa will accept Bitcoin as payment which further boosted the price of Bitcoin. On the other hand his tweets on Dogecoin and made the meme coin gain over 1000% since last year.
Yesterday (Tuesday 18, 2021), China banned financial institutions and payment companies from providing services related to cryptocurrency transactions. They also warned investors against speculative crypto trading. Three state-backed organisations, including the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China issued a warning on social media.
They warned that consumers would have no protection if they were to incur any losses from crypto-currency investment transactions. They also added that recent wild swings in crypto-currency prices “seriously violate people’s asset safety” and are disrupting the “normal economic and financial order”.
Although crypto-currency trading has been illegal in China since 2019, people are still able to trade in currencies like Bitcoin. The news sent the market crashing by over 30% because the news triggered a huge sell off amongst several traders. The extension of the ban to banks makes it more difficult for users to fund their exchange wallets. However, people will easily switch to peer to peer trading as has been seen in other countries like Nigeria and India.
Irrespective of the recent happenings, the crypto market has been due a price correction since it’s bullish run this year. It is expected that the market will start recovering later this week or next week all things being equal.
Do you think there are other reasons we missed here? Share in the comments below.