If you are a Bitcoin trader & you still have hair on your head, well done…

If there is one thing we know about cryptocurrencies is that they are volatile. We saw the price of Bitcoin and other altcoins go up and then retreat within “reasonable margins” over the year to use the term loosely. However, the events of this afternoon showed just how bad it can get.

According to a report by Bloomberg, there was a massive retreat in the value of cryptocurrencies most notably Bitcoin which fell by 11% to break at below US$40 000 which is 25k off the record that it set in April.

To put that all into perspective, the value of all the 7,000 tokens that are tracked by CoinGecko shrunk by more than US$600 billion over this week to US$1.9 trillion.

Who or what is to blame?

Unfortunately, there is no straightforward answer to that question because there are a number of factors at play that predate today’s events. A starting point is everyone’s favourite billionaire Elon Musk who this week said that Telsa will no longer be selling cars using crypto because of its environmental impact.

What the SpaceX boss meant by this was that he was concerned by the use of fossil fuels in bitcoin mining and transactions. Now, I don’t know about you but he probably should have done his homework before setting the market off in a frenzy.

However, he is not incorrect on that note because to mine Bitcoin and other cryptos you need electricity to power computers. Electricity generation even though solar and other alternative energies are gaining in popularity is still dominated by fossil fuels like coal.

And this is made worse when we look at where most of the world’s Bitcoin is mined… According to a report by Yahoo, an estimated 65% of the world’s Bitcoin is mined in China and the country depends on nonrenewables like coal for power generation.

Speaking of China…

So… The Chinese government decided to crackdown on cryptos in a similar fashion to what our local RBZ did with Golix back in 2018. Chinese financial firms were prohibited from serving cryptos transactions which of course means there were going to be ripples in the market much like the one we saw today.

This regulatory measure led to the many Bitcoin and altcoin traders selling off whatever they had. It’s funny that earlier today we were heralding the Temenos for accommodating cryptos on its future core banking software and then things went pear-shaped fast.

Will things get better?

There have been reports that the massive sell-off had abated, Bloomberg senior editor John Authers tweeted this a while ago:

So. Bitcoin fell 53% in five weeks, and then it rallied 35% in four hours. Two observations for now:
1) Nobody in their rate mind would enter into a transaction denominated in bitcoin
2) It's too early to say the bubble's burst (or to say this is a new bull market). pic.twitter.com/ArEaaKVUHC

— John Authers (@johnauthers) May 19, 2021

At this point, it might be too early to tell what could happen, we will just have to wait and see…