Bitcoin crashed and has lost more than 40% of its value in just a few weeks. Although many analysts had previously warned about the speculative value of the cryptocurrency, the Bitcoin plunge seems to have caught more than one crypto-investor by surprise, who will have to wait for more time for his investment to be able to get any profitability out of it.
Not only Bitcoin, but also other currencies such as Ethereum fell this week. Bitcoin came close to touching $30,000, while Ethereum went from being worth over $4,000 to $2,700 in less than a week.
Although both Bitcoin and Ethereum have seen a slight recovery from the shocking drop during Wednesday’s trading, the cryptos may take some time to recover from this blow. The plunge in Bitcoin and other cryptos has three culprits: one is the eccentric billionaire and Tesla CEO Elon Musk, the second is the Federal Reserve (Fed), and the third is China.
The CEO of Tesla and founder of the aeronautics company Space X, has distinguished himself for his fondness for cryptocurrencies and for his controversial tweets that have skyrocketed the price of cryptocurrencies such as Bitcoin and Dogecoin, while bringing him into trouble with the Securities and Exchange Commission (SEC).
Last week Musk announced that Tesla would stop accepting Bitcoin due to the environmental impact of Bitcoin mining. Bitcoin mining has been highly criticized for its high energy consumption, as well as the high dependence on fossil sources for the generation of such energy.
With Musk’s announcement, Bitcoin crashed sharply which led to a lot of speculation as to whether or not Tesla sold the Bitcoin it had acquired earlier in the year. Musk later clarified that Tesla still retains its Bitcoin.
The Federal Reserve
Perhaps the main culprit behind the Bitcoin plunge is the Fed with its 4.2% inflation announcement last week, which sent not only the Bitcoin reeling, but all stock markets that were alarmed by the prospect of higher inflation.
The announcement of the surprising inflation — never before seen since the ’80s — was predictable, after several criticisms received by the Central Bank for its lax monetary policy, such as the continuity of money issuance until 2024, the year in which the FED estimates that the unemployment rate of 3%, where the United States was before the pandemic, will be recovered.
The final blow that caused the Bitcoin crash was dealt by China when the Chinese Central Bank stated that, “Cryptocurrency prices have soared and plummeted recently, and speculative trading has picked up. This seriously harms people’s property security and disrupts normal economic and financial orders.”
According to Chinese regulators, financial institutions and payment companies will not be allowed to engage in any transactions involving cryptocurrencies, nor should they provide cryptocurrency-related services to their customers.
This announcement adds to the series of attacks China has made on the cryptocurrency market, especially mining, as it sees it as an impediment to achieving its carbon emission control goals.
Bitcoin and other currencies are also seen as competition for the blockchain services provided by the Central Bank of China, which has become the first central bank to offer a digital currency.
Although China views cryptocurrencies with suspicion, it is certainly not suspicious of the blockchain technology that enables the operation of these cryptocurrencies.
In this sense, with the implementation of the digital Yuan, China could not only gain predominance in the international monetary system, but also have control of the information of the users of its digital currency -which unlike Bitcoin and traditional cryptocurrencies- does not guarantee anonymity.