The $ 500 billion lost in the latest crypto market collapse raises several questions within the industry. All observers thus agree in recognizing that this crash was caused by a chain of several factors. Although it is difficult to list them all, here we offer you five reasons for the recent bleeding of the market.
The escapades ofElon musk
It’s hard not to mention the name of the CEO of You’re here whose latest actions have caused panic on the markets. Used to driving up the price of bitcoin and Dogecoin through its tweets and various media releases, Mr. Musk has taken the industry on the wrong foot this time. He made it known last week that his business was going get rid of his $ 1.5 billion bitcoin stash. This decision also marks the end of the use of the asset to pay for the brand’s cars. There followed liquidations which helped trigger general market volatility.
The dramatization of information from China
The day before the crypto market collapse, Reuters published news suggesting that China is now banning the use of cryptocurrencies. No need to draw a picture, this second cannon shot has finished alerting the investors who eager to sell their positions. If they were likely influenced by the recovery that social media and the rest of the press made of the information of Reuters, the latter, however, dramatized the facts. In reality, the Central Bank of China backed by payment companies has only reaffirmed the rules in place since 2017 that limit crypto transactions.
Liquidation of leveraged positions in an already stressed market
Like individuals, several companies have taken the gamble of investing in bitcoin using leverage, in other words money borrowed from stock exchanges. While company shares are usually sufficient as collateral, the situation changes when the asset’s price falls. In the absence of additional guarantees, the stock exchanges liquidate the shares at their disposal to hedge their exposure due to the leverage effect. More than $ 8 billion were thus liquidated by the latter, which therefore increased the pressure on a market already stressed by the influx of sell orders mentioned above.
The imbroglio around the reserves of the stablecoin of Tether
Stablecoin pegged to the US dollar, Tether is the asset most used by traders navigating between multiple cryptocurrencies. The company behind the asset, however, is struggling to prove that its dollar reserve is strong. His post from the past week shows that most of its reserves consisted of commercial papers and miscellaneous loans. His refusal to submit to a standard audit ended up amplifying the doubts of his many detractors. Market collapse coincides with Tether deadline for submitting financial documents, several observers hastened to make a link between the two events.
Sell your cryptos to pay your taxes
For most Americans, May 17 was the last day of the tax declaration which implies a checkout. Many individual investors who have made significant profits with their crypto wallet, some suggest they may have used it to finance this bond. This remains a plausible reason to explain the liquidations observed from all sides in the crypto market.
Taken together, all of these factors provide an explanation for the origin of the storm that resulted in more than $ 500 billion in losses. It could not be otherwise when we know that the top five cryptocurrencies alone account for 75% of the market capitalization.
The comments and opinions expressed in this article are those of the author alone, and should not be considered as investment advice. Do your own research before making any investment decisions.