The freefall dive of all major cryptocurrencies combined might have made investors anxious, however there is much to learn for an optimistic future
On May 19, investors across the globe were able to witness a red tide of crypto chart pages, suggesting a Black Friday event of blockchain. While some of the big and medium players are slowly recovering at a somewhat lower but stabilizing price at a steady pace, others are stuck on the downwards slope - like a depressed teenager during lockdown. Most noteably, Bitcoin has reached a price of $38,000 as of May 24. The simultaneous dive of all cryptocurrencies at a detrimental rate was not a matter of chance, but caused by several, in part political, developments throughout the mining world, which we will investigate in the following.
One would be mistaken to believe the ambitious project of crypto to have found its final destination. Instead, investors should pay close attention to dominant trends in the crypto scene and learn from the cataclysmic Wednesday crypto crash. We will look into some of the developments to keep an eye on.
The lead up
Among the many factors that lead to the steep drop on Wednesday, one man single-handedly flung around the worth of cryptos like Bitcoin, Ethereum and Dogecoin as if it was a game. The talk is about none other than the SpaceX, PayPal and Tesla billionaire Elon Musk. The ardent advocate of blockchain money had allowed purchases of his electro motor vehicles with Bitcoin for the longest time, while also claiming to be the “Dogefather”, made his first mark this month in the lead up to an appearance on Saturday Night Live (SNL) on May 8. The start of a rollercoaster ride.
The appearance was announced, Dogecoin went up, the show aired, Musk’s mentions of the crypto weren’t supportive enough, and the coin went down. Then all of a sudden, Musk launches a Twitter poll, asking his followers whether or not he should accept Doge for Tesla transactions, the price spiked. The unprecedent power of any given Musk tweet soon caused backlashes across the crypto scene, with users criticizing one-man stunts in a by nature decentralized industry. Such backlash in fact might be a good sign for investors. Musk’s marketing had evolved much around his meme-community, a reason why he had embraced Dogecoin so much, it fit the meme-lord image too well, and this community was a driver of his influence. With fans growing sceptical of the Mars-man’s moves, the impact of Musk could be slightly cushioned.
But the shocker came when Musk announced Tesla to withdraw Bitcoin transactions from Tesla entirely on May 13, also over Twitter. A huge car company taking down a crypto was a big deal, karate-chopping the stocks to a hardcore drop. The reasons stated by Musk were anticipated by some. The carbon consumption, which exceeds the demand of the entirety of Argentina, and environmental impact of Bitcoin was deemed too high. The entrepreneur of eco-friendly brands could no longer justify his affiliations with such a major nature killer. Hardly calming the Bitcoin selling spirits of investors, Musk did clarify that he continues to believe in crypto as part of the future, praising the decentralised solutions of the projects. Currently, he claims to be searching for an eco-friendly alternative, with Dogecoin being a possible successor. Nonetheless, Dogecoin’s Shiba-Inu sized carbon footprint, or pawprint, is only small because of a small user base. Optimisation processes to circumnavigate the demand in processing power are under way, involving Musk himself.
However the richest man of the world is not the only one to blame for the universally red numbers. But the carbon consumption concerns are shared among many entities, entities with more influence than Musk. The New York Senate Bill 6486 proposes to commence a similar banning process for Bitcoin mining as was seen with fracking. After a three-year review, state officials will decide if the mining activities endanger the state’s climate goal. In the upstate, nearly obsolete coal power plants were soon ready to be shut down, but were fired up once again in order to feed the hunger of the latest mining crave. A development leaving measurable marks in the state’s environmental condition.
Energy provision prompted difficulties in other economies as well, one notable example being Iran. This is a major issue, since the sanction-struck country had used crypto to relieve the economy of the consequences of the trade war with the U.S.. An unprecedent low amount of rain caused low energy outcome of the nation’s hydroplants. Subsequently, the Iranian government cracked down on home electricity miners who were drawing the produced energy out of other vital sectors. In the process, Iran increased its regulatory requirements for crypto miners, which further damaged the competitiveness of Iran’s blockchain industry, which holds its focus on decentralisation. This was more detrimental to the crypto market than the first glance might suggest, however a total of 4% of Bitcoin hash worth was mined in Iran, and it was again not the only crypto affected by the rule changes.
But the major bummer for blockchain enthusiasts came the day before the charts went down. Several institutions in China were prohibited to offer financial services linked to crypto-currencies, and were also urged to step up monitoring on digital money flows. A major blow. The new regulations made it several times more difficult for miners and holders of crypto to carry out exchanges with fiat currencies in both directions. The regulations were followed by an official warning of the government to refrain from crypto transactions, and the Chinese government is not known for a lenient pose and goofy jokes. In fact, the harsh restriction that have arisen in the past couple of years are supposedly part of Chinese aspirations to reach the 2040 climate goals, which would align the economic super power’s goals with that of other nations, however some believe that the implementation of the Chinese digital Yuan correlates with the restrictions in a causal relationship.
The digital Yuan is a Central Bank Digital Currency (CBDC), basically a cryptocurrency which is not decentralised, but instead the opposite, making it more similar to a digital version of a fiat. The first CBDC of the world to exit testing phase and being in full functional use, and so far the only one, is the digital Sand Dollar of the Bahamas. The Sand Dollar is used to facilitate transactions between the many islands of the nation and to provide financial services to more remote areas where no banks are to be found, as well as to counter corruption. The latter aspect is a fine whine for China, a nation which is rather fond of monitoring the activities of its citizens on a large scale. While decentralised blockchain provided privacy for Chinese citizens, the CBDC will provide full surveillance. A number of CBDC projects was launched around the world, some by democracies, others by countries with strict government control, who have their sights on blockchain. These developments have caused the cataclysmic Wednesday crypto crash and are continuing to keep the exchange rates low.
That was quite the bad news, and at this point, some traders might fold their cards and cash out completely. Professionals however might understand that the volatility of the market works in more than one direction, and that the versatile and resilient industry is very capable of adapting. The initial motivations of crypto thinktanks to provide decentralised money on a global scale remains unchanged, and while some regimes may combat the privacy, the blockchain community is one hell of an enemy.
An initial draw back of miners following the Chinese restrictions is natural, however the fears of losing monetary privacy, an orwellian concept at best, will lead to the major think tanks of the industry to search for new solutions to combat given restrictions and provide safe private access regardless of any governmental intervention.
Besides, not all countries are cracking down on crypto, this would be a false impression. In fact, many countries of the world are embracing blockchain technology. In the United Arab Emirates, where the AIBC Summit will be taking place on May 25 and 26, the Emirates Bockchain Strategy was introduced, aiming to convert 50% of all financial government transactions to blockchain by 2021, and beyond. In Africa, the freshly born crypto SafeMoon is making big steps in collaboration with officials of The Gambia to implement their currency in the region with the aim to create jobs. According to their official website, SafeMoon is aspiring to expand to other African economies by the end of the year.
Additionally, countries like the U.S. are quite liberal in their stance to crypto money, and has not cut down on any mining activities of lower energy consumption. After all, Elon Musk also remains a crypto fan, working on new solutions for greener crypto, and trends are well on their way. Apart from a rise in green energy sustaining mining activities, new methods for inherently green crypto trading have been developed. Chia, a crypto which had been launched just this year, is not dependent of high-end processing power to generate new tokens. Instead of proof of work, the method used by most projects, Chia uses proof of space. No calculations must be made, but instead, digital memory is dedicated to a Chia coin. Since blockchain developers have witty humour, this process is referred to as farming. The hard-drives farmers dedicate to the currency are far less damaging to the environment, laying the ground works for a greener blockchain future. Even greener than Ethereum, which with its proof of stake method, had already shown the power of an eco-friendly image on the market. Solutions such as proof of space, are thought to increase equality for farmers however, since it does not favour holders of a high number coins, like proof of stake does.
Ultimately, the death of crypto seems to be prophecy foretold by laypeople based on a sudden fluctuation that experts were prepared for from the start. While some passed trends of crypto might in fact truly die out, the industry is by nature very capable to adapt and repair its flaws. The leading heads of the industry, who will discuss further possibilities of future developments at the AIBC Summit in Dubai, which will be live streamed on AIBC, have designed cryptos of various natures and will are deterred by a billionaire’s Twitter account, energy consumption difficulties or an undemocratic regime trying to suppress the projects intention do not scare this type of people. Spikes in charts will return and staying in the market will be worth your while.
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