May 19th, 2021, brought the crypto trading world to its knees. After Chinese regulators signaled a crackdown on the use of digital coins, the cryptocurrency sector lost over $177 billion in market capitalization overnight. And we have a crypto crash in 2021. But before we dive in, let’s do a quick recap of all things crypto. Let’s start with Bitcoin. On the surface, Bitcoin is a form of decentralized money. However, before its invention, the only way to use digital money was through an intermediary like a bank or PayPal. Remember, using these routes means using currency controlled by the government. Enter Bitcoin.
Why Is Crypto Crashing?
By creating a decentralized form of currency, people could trade directly without needing an intermediary. In simple terms, banks aren’t required anymore.
Moreover, since there’s no centralized system, it’s virtually impossible to control, shut down or manipulate. Consider what this means when the government is removed from the equation?
The more governments want to be involved, the more volatility we’ll see before regulations happen. Cryptocurrency has always been volatile. Whether it’s Elon Musk pushing Dogecoin or people mining Bitcoin, it’s been a wild ride.
Crypto Crash 2021 Key Takeaways
- In May 2021, the cryptocurrency sector lost over $177 billion in market capitalization overnight
- Before the Chinese crackdown, the all-time high for Bitcoin reached $64,778 US. However, after the Chinese announcement, Bitcoin tumbled to a low of $30,101.
- He who controls the printing of money controls you
What About the Other Coins?
They had an even worse day.
Look no further than Ethereum, one of the best-performing cryptocurrencies in May. The carnage was undeniable. Within 24 hours, over $8.6 billion of positions got liquidated.
If we turn our attention to Dogecoin, I don’t think those riding the rocket ship to Mars with Elon enjoyed their ride. Instead, just one joke by its supporter Elon Musk sent its value tumbling.
Even before China’s crackdown, Elon sent crypto markets on a wild ride.
For starters, he flip-flopped on his decision to allow Telsa to accept bitcoin payment for its cars. In one fell swoop, Cryptocurrency fell 12%. As a result, you’re looking at a crypto crash 2021.
What Caused the Crypto Crash of 2021?
You can thank the People’s Bank of China, the China Bank Association, the National Internet Finance Association of China, and China’s Payment and Clearing Association for the crypto crash 2021. By prohibiting institutions from accepting virtual currencies or using them as a means of payment and settlement, fortunes were erased overnight; they brought the cryptocurrency market to its knees.
And it gets worse. Institutions were prohibited from providing exchange services between the different cryptocurrencies along with the Yuan and other foreign currencies. To add more fuel to the fire, institutions couldn’t offer cryptocurrency saving, trust or pledging services and issuing crypto-related financial products. Nor could virtual currencies be used as investments by trust and fund products.
Why the Sweeping Ban From China?
Chinese regulators see cryptocurrencies as a threat to their national currency Yuan. Hence the launch of the People’s Bank of China’s digital currency.
To sum it up, I don’t think governments like digital currency because they can’t control it. Without control, they don’t have power. And how ironic is it that the government came up with their own Cryptocurrency?
Once again, another attempt to keep money flowing under their strict oversight. All while causing the crypto crash 2021.
Others believe that the government is worried about those using crypto to get money out of Hong Kong. Once again, not a far stretched idea, but it all leads back to one point: The government wants to control.
There are a few trains of thought as to why China cracked down. Some think it’s due to the Chinese government trying to protect investors from speculation. The People’s Bank of China reportedly said virtual currencies couldn’t be used as a form of payment because they aren’t real currencies. But who gets to choose what is “real” currency?
Crypto Crash 2021 Thoughts To Ponder
This points to a more profound question: Who has the right to issue money?
Reclaiming or ensuring the monopoly over the right to issue money is about control. That said, it’s worth noting that claiming a monopoly over the issuance of currency is by no means unique to China.
After the crypto crash of 2021, why would one be interested in investing in digital currency?
People Are Worried About the Stability of the Dollar
For something to be called money, it needs to satisfy three requirements. First, in line, it has to function as a medium of exchange. In other words, people will readily accept it for payment for goods and services rendered.
Secondly, money must be in units we can account for. A quick stroll down memory lane shows a time where tobacco and other crops backed money. However, variables we can’t control, like poor weather, make its value unpredictable, and the value of money-backed items must be predictable. Thirdly, money must store value.
Here’s where we run into a problem… Printing money
When trillions of dollars appear at the click of a button, governments can’t help themselves. Worse yet, they can’t help themselves when it comes to devaluing money. It was true 2,000 years ago, and it’s true today. And we just might be close to another devaluation in today’s money system. It can and will happen to the U.S. dollar, and it won’t be the first time.
Using Cryptocurrency as a Hedge Against Inflation
People are concerned about what they see as the steady attack on the value and stability of the dollar. However, between rising annual federal deficits and the $21 trillion U.S. federal debt time bomb, the future of the dollar and rising inflation is unsure.
One way to hedge against inflation and especially against dollar devaluation is using the cryptocurrencies like Bitcoin and Ethereum. The cryptos are a technologically cutting-edge way for retaining your purchasing power. They’ve become particularly popular in places with capital controls like North Korea, South Africa, and China. I’d be remiss not to mention their value in countries like Argentina and Venezuela. However, be aware of the potential for a crypto crash 2021 and beyond.
Freedom From the Chains
If you remember, just a few years back in Cyprus, the Cypriot Central Bank announced that patrons could only withdraw 100 euros per day. Greece went even harsher, allowing only 60 euros per day in 2015. Regardless of your savings, it doesn’t matter how much you have without access to your money. With 24 hours per day, seven days a week, access to cryptocurrency wallets, this electronic form of money knows no borders.
What about people in countries like Cuba or Iran and North Korea who can’t just pack up and leave. If you scour the history books, you’ll see examples where the government just seized their money. But thanks to cryptocurrencies, they can rest easy knowing that their money is stored outside of the reach of their country’s central bank and regulatory agencies.
Should You Invest in Cryptocurrency?
That decision is up to you. However, the two cryptos are still astronomically higher than they were a year ago. Bitcoin is up more than 30% in the year to date, according to Coindesk, while Ethereum and Dogecoin have rallied more than 255% and more than 7,500%, respectively. But there’s always the porential for a crypto crash 2021 and beyond.