Anyone with money in crypto for over the past month will easily tell that May 2021 wasn’t exactly a great one for the market at all. Things were fine, with asset prices faring well and speculators bracing up for what could be another try at record highs. But, things soon turned bad - and very fast.
Everyone understands the sequence of events that went down. Elon Musk tweeted a statement from Tesla, announcing that the company had decided to stop accepting payments in Bitcoin. The decision was especially bad, considering that Tesla accepting and investing in Bitcoin had been the driving force behind the asset’s momentous jump above $50,000 back in February.
Tesla Rocks the World... Again
As soon as the Musk tweet went out, a debate was sparked about whether Bitcoin is truly bad for the environment - as well as whether Tesla is as green as it portrays itself and the possible methods that can be taken to help reduce Bitcoin’s carbon footprint.
Sadly, the discussions weren’t enough to save Bitcoin - and the broader crypto market. The leading cryptocurrency began dipping, and other altcoins soon followed suit. What ensued was a market downturn, the likes of which we haven’t quite seen in a while. Bitcoin bottomed out around $28,000, leading many investors with losses and no choice but to pull out.
China’s Stance on Bitcoin Mining Played a Role as Well
While many attribute the plunge to the Tesla tweet, there is also the fact that tensions are mounting in China over the stance of the government on Bitcoin mining.
The Chinese government has never been subtle about its disdain for cryptocurrencies. As far back as 2017, the government has been banning everything to do with digital assets. In 2019, it went on a full-scale crackdown of crypto exchanges and Initial Coin Offerings (ICOs). However, the mining space was allowed to thrive.
In fact, China holds a vast majority of the global Bitcoin hashrate, according to data from the Bitcoin Mining Map. So, everyone naturally believed that the government would want to leave this subcategory of the industry alone. Last month, however, rumors began circulating that the Chinese government - as well as authorities in areas like Hong Kong and Inner Mongolia - was looking to crack down heavily on miners.
Things are so dire in China that the South China Morning Post (SCMP) reported that officials unveiled new draft rules that would impose stricter punishments for anyone caught mining cryptocurrencies. As the report explained, some of the punishments include placing miners on a social credit blacklist that would prevent them from getting access to things like loans and the public transportation system.
Among other things, the new rules particularly mention industrial parks, data centers, telecom service providers, internet companies, and even cyber cafes. Companies found to be harboring miners would immediately lose their operating licenses. They could also be taken out of the public electricity trading scheme and have their operations shut down indefinitely.
For now, there is a public review process going on for the draft rules. However, it is just a show of how bad things have gotten. Chinese crypto miners are no longer safe, and even they know it. Now, they are beginning to move out.
BTC.TOP, a mining pool that accounts for up to 2.5 percent of the total Bitcoin hash rate, announced that it would stop operating on the Chinese mainland and move its business to North America. Huobi Mall, the mining offshoot of top crypto exchange Huobi, also announced that it would stop selling mining rigs in China and temporarily shut down operations there. Mining firm HashCow has also stopped buying new mining rigs for now.
Not a Very Good Month
At the end of the day, all of these caused a terrible drop in market prices. The entire market lost over 30 percent of its capitalization, and assets lost even greater percentages of their values.
For the past week, Bitcoin has struggled to gain the $40,000 mark - for the record, it still hasn’t. While altcoins have done their best and made moves of their own, they’re still nowhere near the levels they used to hold.
There is optimism that asset prices will rise again. However, it is now a question of how long the entire process will take. The last time such a major drop happened, we had what is now called the crypto winter of 2018. It took years to get back to a level where investors could be comfortable enough to trust Bitcoin again. If that is what we’ve reached here, it is quite an unfortunate turn of events.
Still, this situation could very well be a positive one. Everyone knows that pullbacks in the crypto market never last. Cryptocurrencies would eventually get on their feet and give investors good value for their money once again. It might take a while, but things usually come around. Now, everyone just has to wait and see how things play out.