CryptoCompare data shows the price of Bitcoin (BTC) dropped from around $45,000 to a $32,000 low this week before it started recovering. At the time of writing the cryptocurrency is trading at $37,800.
Ethereum’s native Ether, the second-largest cryptocurrency by market capitalisation, plunged from $3,500 to a $1,850 low before it also moved back up, and is now at $2,250. Almost every cryptocurrency saw its price plunge this week amid a wide market crash.
In total, the market downturn saw the total market capitalisation of the space drop by $600 billion, and several factors appear to have been behind it. Cryptocurrency prices started dropping after Tesla CEO Elon Musk revealed in an announcement that the electric car maker would no longer accept bitcoin payments over environmental concerns.
As prices kept dropping and the community criticised Musk, he implied at one point Tesla could sell all of its Bitcoin holdings, estimated to be around 43,000 BTC. His environmental concerns spiked breakout searches on Google for more energy-efficient crypto assets.
The market was seemingly over-leveraged, as prices dropped and triggered a wave of liquidations that put further pressure on prices. Decentralised Finance (DeFi) liquidations went up 14-fold as prices tumbled, going from a regular $1 million to $5 million per day to nearly $40 million per day. On DeFi platforms users borrow assets by over-collateralising their positions with crypto assets. IF the value of the collateral drops below a specific threshold, smart contracts trigger a liquidation to pay the lender.
As the market turmoil was unfolding three major payment associations in China – the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China – reaffirmed their commitment to upholding regulations from 2017 preventing financial institutions from dealing with cryptoassets.
As prices dropped further, Google Trends revealed on Twitter that searches for “cryptocurrency” hit an all-time high worldwide, while “what happened to cryptocurrency today” surged 850 per cent as users tried to figure out why prices were crashing.
Adding fuel to the fire, the US Treasury Department announced that it’s taking steps to crack down on cryptocurrency market transactions, requiring any transaction above $10,000 or more to be reported to the Internal Revenue Service.
The move only applies to businesses and is meant to “minimize the incentives and opportunity to shift income out of the new information reporting regime”, even though cryptocurrencies represent a small share of current business transactions.
Moreover, the US Office of the Comptroller of the Currency (OCC) reportedly asked staff to review its cryptocurrency-related guidance issued last year under the former Comptroller, over concerns the guidance did not appear to “have been part of a broader strategy related to the regulatory perimeter”.
As crypto prices dropped, investors redeemed millions from cryptocurrency funds, marking the first net redemptions of the year. Tesla, later on, clarified it has “not sold any Bitcoin” while Square added it did not plan to change its Bitcoin buying strategy, pointing out it will continue to evaluate BTC as an investment opportunity on an ongoing basis.
Wells Fargo’s crypto strategy
The Wells Fargo Investment Institute is reportedly planning to evaluate and onboard an actively managed cryptocurrency strategy to its platform for qualified investors, according to the institute’s president Darrell Cronk.
The “professionally-managed solution” to invest in cryptocurrency has been in the works for months, and could be added to the platform by mid-June. Only qualified investors – those with an annual gross income above $200,000 or a net worth of over $1 million – will have access to it.
As the price of Ethereum dropped, Cathe Wood’s Ark Investment bought 639,069 shares in Grayscale’s Etherem Trust (ETHE), allowing the fund to have exposure to Ethereum’s price performance without directly holding the cryptocurrency.
Institutional money managers are believed to have been buying up millions of dollars worth of ETH over the last few months. Ark Investment has also invested in Nasdaq-listed cryptocurrency exchange Coinbase, it’s worth noting.
Francisco Memoria is a content creator at CryptoCompare who’s in love with technology and focuses on helping people see the value digital currencies have. His work has been published in numerous reputable industry publications. Francisco holds various cryptocurrencies but has no bias in his writing.
Featured image via Unsplash.