Bitcoin goes down due to these three reasons:
1. Bitcoin mining ban in China, namely in Sichuan Province, the largest Bitcoin mining center in the country. A similar initiative is to be held in other regions, but the press is aware of the mining centers closure in only five of them.
2. The tightening of the rules for cryptocurrency circulation in the United States, proposed by local authorities. According to representatives from various Ministries, Bitcoin poses a severe threat to the US dollar, being a “highly speculative asset.”
3. The fall of Bitcoin is indirectly provoked by the influence of billionaires, especially the CEO of Tesla Elon Musk. At first, a famous electro car could be purchased for Bitcoins; however, since May 2021, there is no such option. Later, in early June, Musk published a few sad Bitcoin memes on his Twitter page. Both posts contributed to a significant drop in the cryptocurrency — this provoked a huge wave of indignation among users of the social network.
What has led Bitcoin to such unfavorable consequences? Let us analyze each situation separately.
- The Fall of Bitcoin vs. the Chinese Authorities
As reported by media sources, 26 mining companies were legally operating in the country at the time of closure. According to RBC, on June 20, the power supply stopped for them. Companies in the following regions, such as Yunnan, Qinghai, and Xinjiang, have been closed similarly to Sichuan. The future for Bitcoin in other parts of the Middle Kingdom is predictable: therefore, many miners are forced to leave the country for a long time. Perhaps the United States will become their next destination point to settle down.
In the morning of June 21, the price of Bitcoin went down by 7% in half an hour and became about $32,000, thereby returning to the rate of June 8, RBC writes. The next day, it became known that the cost of bitcoin went below $30,000 for the first time since January 2021 (back in the day, it was twice as much). RBC Pro confirms that the pressure of the Chinese authorities on the digital currency affected its rapid price collapse.
According to them, “speculative cryptocurrency trading has recovered, and at the same time, the security of people’s property has suffered, as well as the economic and financial order has been violated.” To continue the quote, the authorities mention the risks of crypto trading:
“Digital, or cryptocurrencies are not supported by real value, their prices are easy to manipulate, and trading contracts are not protected by our legal systems.”
However, experts believe that such measures are associated with the emergence of a digital yuan, the structure of which will be somewhat different from Bitcoin’s decentralized one. Thus, it is a severe competition.
As a result of hot events, the Chinese Soviet Republic National Bank (CSRNB) has introduced a general ban on cryptocurrency transactions to the following financial institutions:
· Industrial and Commercial Bank of China;
· Agricultural Bank of China;
· China Construction Bank;
· Postal Savings Bank of China;
· Industrial Bank;
· Alipay payment service.
Interestingly, the first three institutions comprise the “Big Four” of the largest state-owned banks in China; Alipay belongs to Ant Group (a subsidiary of the e-commerce giant Alibaba Group). Thanks to them, Bitcoin “became” a larger-scale rival in the authorities’ fight with cryptocurrencies in general. As a result of these institutions’ statements, the relevant contracts with clients will be terminated, and their accounts will be permanently blocked.
2. The Fall of Bitcoin vs. the Actions of the United States
Even in such an advanced country like the United States, Bitcoin mining and the cryptocurrency concept are not being taken seriously. Some authorities, exampled by the Ministry of Justice and the Ministry of Finance, perceive it as “making money out of the air.” Given that the number of mined digital coins recoups the cost of mining equipment hundreds of times, “extra money” appears worldwide. That results in the financial situation getting worse and leading to inflation. Simply put — there is loads of money, but there are few goods available, or when the goods run out, the money remains and loses its value.
The US authorities use this circumstance as the main one for the thoroughly planned ban of Bitcoin and all related operations with the crypto. One of the ardent opponents of Bitcoin is the Former Secretary of Treasury Steven Mnuchin.
During 2020, his statements were quoted by media outlets one after another, emphasizing that “Bitcoin seriously threatens the US dollar as the main reserve currency of the world,” or that “Bitcoin is widely used by local criminal authorities.” Mnuchin’s position was supported by Former US President Donald Trump, calling Bitcoin “highly volatile,” although it is a common-sense fact.
Further, the Treasury has clearly stated to Facebook representatives, Bitcoin users (who make up 14% of the US population), and other digital service providers that they should apply the same anti-money laundering measures as traditional financial institutions. This item also includes measures to strengthen the fight against the financing of terrorism, known as AMLCFT guarantees.
Since the entry of Facebook into the crypto community has shown the full power of digital assets and the threat they pose to traditional financial institutions in terms of changes in global finance, monetary policy, and defining money, lawmakers face technical titans. Thus, power is moving from secular politics to computer scientists at a slow but effective pace.
Besides, the possible factor can be the introduction of a ban on the use of physical wallets and the consideration of introducing criminal liability for non-compliance with the rules. Who suggested that? Steven Mnuchin — that is correct. This initiative does not affect the fact of owning Bitcoins — they can be held on the accounts of crypto exchanges, such as Altynex. Such activity is in no way prosecuted and is not punishable by law. However, it is worth considering that using autonomous wallets, such as Trezor or Ledger, makes the owners anonymous and does not allow law enforcement officers to arrest existing funds or block the wallet.
In addition, US Congressmen Warren Davidson, Tom Emmer, Ted Budd, and Scott Perry once addressed a letter to Mnuchin, expressing “concern about reports that the Treasury Department is considering issuing rules restricting the use of autonomous wallets.”
They also stated that if the planned regulation “requires the company and its users to determine a wallet’s owner to make transactions with, then digital asset transactions used by Americans will be put at a significant disadvantage compared to the conditions of our global competitors.”
The letter also explained the advantages of using offline wallets:
“Eliminating the intermediary by using offline wallets means that consumers can maintain confidentiality and freely make transactions, which is extremely important as people increasingly conduct their finances in digital currencies.”
For comparison, there was a correlation line made about China:
“This freedom is in sharp contrast to the Chinese digital yuan, where citizens’ transactions are monitored, and transactions involving hazardous persons or activities can be censored.”
To date, the position of the US authorities concerning Bitcoin remains unchanged. The current Secretary of the Treasury, Janet Yellen, has declared war on Bitcoin, as reported by media outlets:
“Bitcoin is inefficient for making transactions and is a highly speculative asset.”
Statements are statements, but what the future holds for American crypto traders and enthusiasts is unknown. The most challenging point for making such a serious decision is that if the US launches actions in this direction, both the EU and Russia will “pick up” the trend.
3. The Fall of Bitcoin vs. Elon Musk
The famous inventor and entrepreneur Elon Musk has already managed to establish himself as the main newsmaker of recent few years. Each appearance makes an impression and is being discussed in the media for weeks: now he declares Asperger’s syndrome on Saturday Night Live as a host; then he zealously supports Dogecoin and devalues Bitcoin, publishing one goofy tweet after another.
In the case with Bitcoin, the story began in January 2021, when Musk declared himself a Bitcoin supporter in the Clubhouse, calling it “a good thing.” Next, he added the hashtag #bitcoin to his Twitter bio.
Sooner, representatives of the Tesla company stated that electro cars be purchased for bitcoins, as they bought cryptocurrencies for $1,5 billion. Subsequently, the exciting news flooded the entire Internet space, and the cost of bitcoin itself increased by 25 % by the next day.
It would seem that such a big statement was supposed to be a breakthrough in the financial industry; however, a few months later, Tesla sold 10% of the cryptocurrency reserves, and Musk completely changed his position. As he mentioned, Bitcoin does not meet environmental parameters as a payment option since it causes large amounts of electricity consumption, considering mining and transaction operations. Subsequently, the price of bitcoin collapsed to $45,000.
And in early June, Elon Musk published two tweets in one day, describing his current attitude to Bitcoin. The first post was a breakup meme with a quote from Linkin Park’s hit single “At The End,” captioned with #bitcoin and a broken heart emoji. The second, on the contrary, laughs at investors who have lost money after the fall of the exchange rate (“I miss you.”). Both publications hit like a bombshell: the price of Bitcoin fell by 5 %, and by numerical indicators, it fell below $37,000.
Most crypto traders reacted skeptically to the Musk phenomenon, notifying Twitter users that the CEO of Tesla is a skilled manipulator and trendsetter, nothing more. They also paid attention that his statements do not refer to financial advice at all, calling them “unfair,” “annoying,” and “amusing.”
However, we should not lose sight of how influential one public person can be, speaking of digital assets. Any changes in Bitcoin and other alternative cryptocurrencies’ price dynamics (for example, Dogecoin) are called the “Elon Musk effect” by the press. Interestingly, every fifth respondent who sold bitcoin in May 2021 linked this decision with the criticism of the cryptocurrency by Musk.
Bonus: The Fall of Bitcoin vs. the Opinions of Crypto-Experts
Louis Navellier, CEO & Founder of the fund management company Navellier & Associates, said that on the chart reflecting the changes in the Bitcoin exchange rate, he identified two “head and shoulders” formations, which, in his opinion — suggest a Bitcoin drop below $10,000.
Navellier claims that when he asks investors about why they invest in Bitcoin, they most often answer that this is due to an increase in the exchange rate of the given cryptocurrency:
“If they bought Bitcoin just because it was going up, they would also probably sell it because it is going down. I think that a break below $30,000 would lead to a serious decline since the vast majority of trades in 2021 were made above this level, which would lead to what traders call “overhead.”
Moreover, he believes that the “tough fall of Bitcoin” is expected due to the large flow of individual investors.
However, RBC experts, who believe that Bitcoin will go up to $85,000 by the end of 2021, are willing to refute their Western colleague’s statement. According to them, something extraordinary should happen — so it leads to a catastrophic decline of Bitcoin. The logic here is simple: when Bitcoin went below the $35,000-mark, crypto enthusiasts activated, massively purchasing it. As a result, this led to the growth of the cryptocurrency, and large investors laid low, waiting for a further increase in the price. At the level of $20,000, increased investor activity is possible. Thereby, there will be a correction in the volatility of the Bitcoin exchange rate.
Despite the depressing factor of the Chinese mining ban, there are still a couple of encouraging ones. First, there is a large number of bitcoins worth $1.58 billion on the Tesla account. And second, MicroStrategy is the owner of a fortune of as much as $3.37 billion. Interestingly, the company purchased a cryptocurrency at an average price of $24,400. It means that even if Bitcoin’s price plummets to $20,000, MicroStrategy will not experience any significant losses.
A Russian stock analyst Yuri Mazur shared his opinion on the “Elon Musk effect” and its impact on the crypto market:
“Elon Musk’s actions disappointed investors, as hopes for Bitcoin’s entry into the world of large multinational companies have not been fulfilled yet.”
Meanwhile, the leading strategist of Exante, Yanis Kivkulis, in one of his interviews, states that Bitcoin goes down due to the general disappointment of investors in the dynamics of cryptocurrencies, and Musk’s tweets, and the bans of the Chinese government “fell into fertile ground.” In the continuation of the quote, he stated:
“The price is being pulled up by new buyers who expect a price increase. Without such dynamics in the last month, the market turned out to be vulnerable. At first, it was greed, then speculation on the news, and now the elimination of margin positions and a total risk-off in cryptocurrencies.”
Additionally, according to Kivkulis, the level near $31,000 will be testing Bitcoin’s strength. At the same time, the market can demonstrate a tremendous amplitude of movements:
“If forces of the sellers outweigh, the exchange rate may go down rapidly to $23,000 — at this amount Bitcoin traded at the end of 2020. In the case of a rebound, the so-called bulls would be able to celebrate the victory only at the levels above $50,000.”
In the end, we would like to summarize with a favorable forecast from the CEO of the Six Nines data center, Sergey Troshin. He says the Bitcoin price will stabilize at the current level with a deviation of a plus-minus 15 % and will gradually restore its growth:
“After such a strong correction, the growth had been measured for months and even years. Bitcoin would not quickly return to its previous levels.”
Currently, Bitcoin is rising to the exchange rate of $34 000.
To read the Russian version of this article, click here.