The rollercoaster fortunes of cryptocurrency traders hit a downward stretch this week, as Bitcoin lost roughly 30 percent of its value, and the other top-five traded coins took double-digit dives.
Bitcoin’s price plunged below $40,000 on 19 May, after hitting more than $63,000 earlier this month, while the valuations of Ethereum, BNB, cardano, and Dogecoin also slumped.
Traders were left licking their wounds, with some naming the date “Bloody Wednesday” for cryptocurrency.
At one point, Bitcoin fell more than $10,000 in one hour, before later recovering almost as quickly – the type of rollercoaster volatility that dissuades many people from taking cryptocurrencies seriously as money.
At the time of writing, Bitcoin’s value had nudged back above the $40,000 mark.
Because Bitcoin is used as collateral to finance leveraged bets in the crypto market, its sudden collapse on Wednesday created so-called ‘liquidity cascades’ for traders.
On the same day, blockchain-based digital asset exchange Binance suspended trading in Ethereum / ERC20 tokens for a period, blaming “network congestion”.
Coinbase – whose IPO in April suggested growing confidence in the digital asset market – also experienced technical problems on the day, suggesting that even the largest exchanges lack resilience to cope with trading spikes.
In April, Bloomberg reported that Binance was being investigated by the US Justice Department and the Internal Revenue Service (IRS) as part of wider moves against money laundering and organised crime.
Confidence was damaged in the crypto sector last week by Tesla and SpaceX chief Elon Musk warning – belatedly – of the environmental impacts of mining Bitcoin, saying that Tesla would no longer accept payments in the currency until its systems could be made more efficient and sustainable.
At the root of this problem are the energy-intensive proof-of-work blockchains that underpin the Bitcoin network, leading the FT to describe the coin as “dirty money”.
Musk also announced that he is working with the founders of the popular Dogecoin to improve the underlying distributed infrastructure of that token.
Musk’s high-profile commentary and interventions make many traders uneasy, as it demonstrates that cryptocurrencies are far from free of the influence of powerful external forces – in this case, the world’s second richest man.
Via social platforms, Musk has shown that he can increase the value of his investments simply by talking about them, something that must trouble financial regulators.
There have been other problems for Bitcoin and the wider crypto market this month. For example, China announced that it is cracking down on Bitcoin, cryptocurrencies, and currency speculation.
According to research from Cambridge University’s Centre for Alternative Finance, nearly two-thirds of all Bitcoin mining takes place in China.