News & Analysis

Cryptocurrency decimation! Massive $700 billion wipe out due to inevitable blocking from China

Andrew Saks, Wednesday, 19 May 2021

Last week it was Elon Musk and another one of his influential tweets which caused the value of Bitcoin to drop as quickly as an iron girder being thrown off the top of the Empire State Building, and this week it is the turn of Ethereum to get an absolute drubbing as its value utterly collapses.

Cryptocurrency is one of those polarizing phenomena. It is almost as though its followers and advocates are on a proselytizing mission, whereas those who consider it a dangerous folly avoid it at all costs.

When Elon Musk, himself an absolute advocate of cryptocurrency via his self-styled moniker "The Dogefather", made the remark in the public domain last week that Tesla will no longer accept Bitcoin as payment for vehicle purchases due to what he cited as its environmentally unfriendly power consumption when mining for 'coins', the value fell tremendously.

Indeed, it fell far more than if it was just those wanting to use it to buy a new Tesla were affected. That is the nature of cryptocurrency markets. They are affected by emotion, speculation and media. They are unbacked, not centrally issued and have no other yardstick other than what people are doing with them at any one time.

That's why it only takes one word from someone with a large audience, and the values move.

Today, Etherium is the next casualty of negative attention. Its value has collapsed by 24% today on the back of China announcing measures to block cryptos being used as payment.

It was inevitable that China, a communist country with capital controls and a planned, government-centralized economy which operates under the absolute opposite method to a free market, would block externally issued cryptocurrency at some point, especially given that its own Central Bank, the People's Bank of China, is in the process of launching a centrally issued digital Yuan.

Etherium has been the subject of a huge amount of attention over recent months and is the second most favored cryptocurrency in circulation after Bitcoin.

Interestingly, as well as Ethereum's Chinese government-fueled crash, Dogecoin has also collapsed today, resulting in the price of the top five cryptocurrencies by value, those being Ethereum, Binance's BNB, Cardano and Dogecoin all being down by double-digit percentages in the last 24 hours with around $700 billion now wiped from the cryptocurrency market over the last week.

Binance is the darling of many young investors who genuinely think it can do no wrong. It is almost impossible to argue a case for personal risk management among its fervent followers, yet here we are…..

$700 billion dollars is an astonishing number. The notion that this can merely be shrugged off and ignored is astounding. If that was the stock market or fiat currency major pairs, there would be uproar.

Looking back to 2015, the Swiss National Bank suddenly removed the peg on the Euro and Swiss Franc, resulting in tremendous volatility which saw off some smaller brokerages, caused large losses due to negative client trading balances for larger brokers, and tripped up a lot of Tier 1 FX desks at major banks.

It didn't amount to $700 billion in damage though, yet it was regarded as a landmark black swan event with unprecedented volatility and the casualties and losses were the subject of discussion for months afterwards.

Today, however, China does something absolutely anticipated, and $700 billion gets wiped off an unbacked market with no recourse for anyone, and nobody bats an eyelid.

As one astute FX industry executive said today "The whole media landscape around crypto this morning is basically "we told you the bubble would burst". Yes. But it keeps bursting, and then the fire is fueled, then it bursts again. Aren't we supposed to learn from our mistakes and take a different path next time?

Perhaps Albert Einstein was wrong...

Share article