The crypto market lost $460 billion in a single day — the China domino effect rolls on

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The crypto market lost $460 billion in a single day — the China domino effect rolls on
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  • China’s current moves make it difficult for these farms to convert their crypto income to fiat currencies.
  • Being the top two cryptocurrencies in the world, Bitcoin and Ethereum are the best examples of the drop.
  • There are many who expect that the crypto market may bounce back again.
Cryptocurrency prices are crashing, and they’re crashing hard this time. Unlike the sell-offs that happened over the past week, the crash that happened since May 19 has led to losses worth $460 billion, according to Coindesk. The crash affected everything from Bitcoin to Litecoin, and even meme-based currencies like Dogecoin weren’t safe. But crashes in cryptocurrency markets aren’t particularly new. So, many wonder why the May 19 crash has received so much interest.

Well, the reasons are many.

It all began in China...

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On May 19, authorities in China directed institutions to stop dealing in cryptocurrencies. While this is not particularly a new move for the country, the scope for the directives are much wider this time.

According to a Reuters report, the directives don’t just bar institutions from accepting payments in cryptocurrencies, they also ban exchanges, which allow users to convert cryptocurrency to fiat currency (in Chinese Yuan or any other). It also directed banks to closely monitor transactions which are originating from crypto trading operations, which is a sign that the government might crack down on such earnings soon.

This was a big red flag for the market, which quickly started selling Bitcoins. According to some estimates, China accounts for about 75% of all Bitcoin mining in the world, meaning Chinese miners have a virtual monopoly on this segment.

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Miners are an integral part of the crypto industry. They authenticate transactions, maintain the digital blockchain-based ledgers that are central to these currencies, and in the process they create new tokens. These new tokens are how a miner is paid, and mining farms in China are said to be worth billions now.

But, as many governments have noted in the past, cryptocurrencies have no value unless they can be converted to fiat currency. China’s current moves make it difficult for these farms to convert their crypto income to fiat currencies.

Unlike regulatory uncertainty in India and some other countries, China’s bans are taken a bit more seriously, because the country’s government has been testing a digital Yuan. Experts have said that the digital Yuan will give the government greater control on its economy, something the Chinese government has always shown propensity for.

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Bull market to break market

The cryptocurrency market has been on a bull-run since around August last year. While Bitcoin prices rose to all time highs, investors were also driven towards Ethereum, Litecoin and even certain meme-currencies like Dogecoin and Shiba Inu. But the market has been facing a turmoil of sorts over the past few weeks.

Some would say that this started with Tesla’s rollback on its promise to accept crypto payments for its electric cars, earlier this month. The market saw a slump that day, followed by tweets by CEO Elon Musk, which led to further slumps. This led a lot of small-time retail investors to sell off their assets, while serious investors saw an opportunity to sell only to buy their assets back when the prices fell.

But industry insiders and executives have expected a price correction for a long time now. Every bull market (when prices rise drastically) is followed by a bear market (when prices fall for a prolonged period of time). The crash yesterday could be the beginning of the bear market, something that long time and really serious crypto investors have been looking forward to for a while now.
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On the other hand, there are many who expect that the crypto market may bounce back again. “I do not believe that Ethereum has entered a bear market, but rather that it is completing a healthy retracement before a larger move to the upside,” Scott Melker, a crypto investor and analyst told Forbes.

Were Bitcoin and Ethereum the only ones affected?

Being the top two cryptocurrencies in the world, Bitcoin and Ethereum are the best examples of the drop, but prices actually dropped across the market. According to Coinmarketcap, the Uniswap token dropped from a closing price of $35.07 on May 18 to $23.43 on May 19. Its market capitalisation dropped by a whopping $6 billion in 24 hours.
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Similarly, Litecoin went from a closing price of $294.62 on May 18 to $189.52 on May 19.


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