What Caused Crypto Crash?
Many crypto enthusiasts have asked, “What caused the crypto crash?” The short answer is “speculators”. Others have pointed to China cracking down on crypto mining and the potential for a Dollar-pegged USD Coin. And some have pointed to the Coronavirus pandemic. But none of these factors can be taken as a definitive answer. Listed below are some of the most likely causes for the recent crypto crash. Let’s take a closer look at each one.
Speculators have driven the current cryptocurrency crash. These individuals are selling their own cryptocurrencies in mass numbers and then buying them cheaply at the next market crash. They are using the media to spread panic and the current plunge is likely to last as long as people continue to sell. However, the reason for the recent crash could be a variety of reasons. Here are just some of them. The first is that crypto markets are still vulnerable to manipulation, even though they may have been affected by other factors.
A Morgan Stanley report on Wednesday warned investors against buying digital assets linked to the equity markets. Sheena Shah, a crypto analyst, noted that the higher prices were driven by speculation, not by real user demand. Speculation does not only affect cryptocurrencies; NFTs and digital real estate are also subject to high levels of speculation. Regardless of the reason, the crypto crash has created concerns for these other digital assets.
China’s crackdown on crypto mining
A crackdown by China’s State Council has caused a massive cryptocurrency crash, knocking bitcoin prices down by 30% and casting a pall over the entire industry. China’s Vice Premier, Liu He, told a group of finance officials on Wednesday that the country is going to ensure the financial stability of the industry. While individual miners may slip through the cracks, large commercial miner companies might decide to find alternative mining hubs where regulations are less strict.
A crackdown in China’s cryptocurrency industry is not the first attempt by the Chinese government to censor the booming crypto sector. It is largely motivated by concerns over capital flight. Cryptocurrencies are widely used by wealthy Chinese people, and analysts predict that China will send as much as $50 billion out of the country by 2020. Despite this, China has already cracked down on the tech and education sectors and may be stepping up efforts to prevent Chinese citizens from exporting their money abroad.
Dollar-pegged USD Coin
The recent crypto crash has destroyed nearly $200 billion in top tokens, but the underlying problem is not UST, but the unstable currency it tracks. This destabilized the entire market, and even its stablecoins are teetering. The first stablecoin to de-peg from the USD was TerraUSD, which depreciated to less than a penny Friday. It has since rebounded to close at 12 cents, and the crypto crash has been blamed on this asset.
The hard-coded USD Coin, as well as several others, are experiencing problems since the TerraUSD devaluation. Deus Finance’s DEI coin, for instance, is currently trading at 66 cents, but has been spiking since Sunday. It has dropped to as low as 52 cents in the early morning hours. Those two coins have fallen more than 85% from their peak this year.
It is widely believed that the recent global coronavirus epidemic has contributed to the steep decline in cryptocurrencies, including bitcoin. It has affected every asset class in the world and has created a risk-off environment for crypto investments. As a result, investors are selling their stocks and moving their cash to gold, which has outperformed crypto in 2020 and has further ding the “digital gold” theory for bitcoin.
The coronavirus pandemic, which killed hundreds of millions of people in the first few days of 2020, is thought to have played a role in the recent crypto crash. The first cryptocurrency Bitcoin plunged by more than 7%, and the second largest cryptocurrency ether fell nearly 13% to its lowest level in a month. After the massive crash, however, the markets have recovered. Some analysts believe this was a result of free time, increased disposable income, and government money pumped into the world as a response to the pandemic. Regardless of the cause, many investors are wary of change and are avoiding cryptos until the dust settles.