The May 2021 Cryptocurrency Crash Explained: Selling by Retail and not Institutions is Driving Crypto Price Plunge
While this week has certainly been a tumultuous week, there is reason to believe that this isn’t the end of the bull market. Chief Economist Philip Gradwell did some analysis on the cost curves of the purchasing of Bitcoin which shows how high the stakes are.
Investors have spent $410 billion to acquire their current bitcoin holdings and $300 billion of this has made a loss at a price of $36,000 . The remaining $110 billion in profit is greater than all that had been spent to acquire all bitcoin held in mid-March 2020, when the last major price fall occurred. He makes the analysis that this amount gives investors incentive to stick around rather than call it quits. Not only that but it appears that the selling was done by retail investors rather than intuitions. He makes this assumption based on the inflows into exchanges. Retail investors are more likely to have their crypto on exchanges so the lack of inflow shows that it was most likely these investors that were selling off
He concludes with one final graph that makes me feel okay about having my entire net worth and my rent money dependent on the crypto market. Whales are buying this dip which begs the question, why haven’t you?
The Week On-Chain (Week 21, 2021)
The market traded down by over 47% as FUD from all over the place has consumed trader’s minds. The week has had a record for the largest red candle in Bitcoin’s history, a $28,136 dollar candle.
This week was unfortunate timing for some critical news such as Elon’s tweet, China’s ban for the millionth time, as well as regulatory FUD. The magnitude of realized losses on-chain this week has eclipsed all previous capitulation events, including March 2020, Nov 2018, and the sell-off that ended the last bull market. Glassnode provides a chart that shows that an all-time high of losses was hit, around 4.53 billion on May 19th.
The article then points out this FUD has reduced profitable entities to 76% of holders.
Glassnode makes a similar analysis to the article above and points out that new coin holders were some of the biggest sellers.
They then compare new sellers to old coin holders which shows a stark difference. Old coin holders were more likely to have been selling earlier, likely because they were rotating capital to ETH. During this time the old coin holders didn’t rush to sell.
Fed chair Powell floats central bank digital currency and more regulation of cryptocurrencies
Federal Reserve Board Chair Jerome Powell released a lengthy video and statement on Thursday announcing that the Federal Reserve will get more involved in cryptocurrency and may even create its own digital currency down the road. Central bank digital currencies are slowly being created by some of the biggest countries. China released one last year and countries such as Sweden, Russia, Singapore and even Canada are looking into following that example. According to Powell, Central bank digital currencies could “enhance payments efficiency, speed up settlement flows, and reduce end-user costs." The unfortunate reality of central bank digital currencies is that they give the issuers complete control over the timing and distribution of wealth of those participating in the system. In essence, CBDC’s are the antithesis of what the cypherpunks believed in. I guess Twoface in Christopher Nolans The Dark Knight was right, you either die a hero or live long enough to see yourself become the villain.
Biden’s IRS Crackdown Proposal Targets Rich Hiding Income
President Biden has proposed a crackdown on wealthy citizens hiding “billions'“ of untaxed income. The administration called for banks and cryptocurrency exchanges to report transactions to the Internal Revenue Service. Their report that they released indicates that 700 billion could be raised over the next decade. These changes could be a big help for the budget but has had backlash from Republicans. They insist that these steps are government overreach and will likely have a hard time getting passed. The proposal mandates that Cryptocurrency transfers worth $10,000 or more be reported to the IRS which only added to the FUD that came out this week. While it was a short term loss, I am looking towards the bright side as this another signal that the United States government is bullish on cryptocurrencies
A Mysterious Bitcoin Whale who sold 3000 Bitcoins at 58K$, Bought back 3521 Bitcoins in the last three days
Charts of the Week
This chart shows some of the times that the Chinese government has cracked down or done some sort of ban on cryptocurrency. It isn’t exactly news at this point for those that have been in the space for a long time but for the newbies it meant it was to sell. In the graph below provided glass nodes on-chain data you can see that it was the recent purchasers that panic sold.
I have included this tweet as a reminder of the fragility of our lives. Tomorrow isn’t guaranteed and time is passing you by. Try to live every day like you want to because our days are numbered.
Michael Saylor, the better version of Elon Musk, is buying the dip. Are you?
Stable coins were above the 1$ peg which shows that the coinbase listing price surge rule applies to stable coins as well
Philip Gradwell with more evidence of whales buying the dip as well he has a talk coming up regarding whether you should buy the dip.
Video of the Week
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Texas Blockchain’s ‘State of the Market’ is a student-led editorial. None of the views expressed by the authors should be taken as the view of the University of Texas at Austin or the Texas Blockchain organization. Furthermore, none of the views expressed should be taken as financial advice in any circumstance.