Bitcoin’s big plunge: how it relates to Elon, China, and kitchen furniture
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A Shiba with a bone to pick... ICYMI, cryptocurrency prices have been plummeting. A week ago, Bitcoin was trading around $57K, down from its record of $63K in mid-April. At one point yesterday, Bitcoin plunged to ~$30K. Meanwhile, Ethereum, Doge, and Litecoin all dropped more than 40%, before recovering (some) losses.
- Nearly $1T has been wiped off total crypto market value since last week, when it was over $2T.
- Shares of crypto-invested companies like Coinbase, Square, and MicroStrategy — an analytics company that invests in Bitcoin — also dipped.
Decrypted... More than half of crypto investors say they’re buying for the long-term. Still, crypto prices are infamously volatile compared to other assets. The current annualized historical volatility for the S&P 500 index is about 15% — for Bitcoin, it's 80%. Historical volatility = how much an asset price deviates (on average) from the average price over a time period. What may have caused this latest plunge:
- Elon: BTC fell last week after Elon tweeted that Tesla would no longer accept it. This week, it fell again after Elon's reply in a thread ("Indeed") led to speculation that Tesla had sold Bitcoin. It hadn’t.
- China: On Tuesday, China reiterated its ban on offering cryptocurrency services, saying crypto is dangerous to the financial order.
The three-legged stool of crypto cracked... Cryptocurrencies sit upon a three-legged stool. The first leg: public enthusiasm (culturally-driven momentum). The second: corporate validation (like company investments, or crypto payments support). The third: government regulation — or its lack thereof, a key element of crypto. Last week, Elon cracked the corporate validation leg. This week, China cracked the regulation leg. That doesn't mean the crypto stool is broken. But when any of the legs show cracks, prices tend to wobble.