Hey guys, welcome back to Zilliqa Zebra. In this article and video, I'll highlight the 5 key reasons contribute to the market meltdown for cryptocurrencies on 19 May 2021.
As always, don't forget to like and subscribe to Zilliqa Zebra for all things related to Zilliqa, and occasionally, other related news.
Cryptocurrency markets took a brutal pounding on Wednesday as Bitcoin fell over 30% to around $32,000, while other currencies, such as Ethereum and Dogecoin, fell ever further. Zilliqa was not spared either, dropping to over 40% before recovering slightly at the moment.
It's tempting to seize on a single explanation for the meltdown, the reality is that crashes of this magnitude are rarely triggered by one event but instead by several, overlapping factors.
Reason 1: China Banning Cryptocurrency (or is it?)
The first key reason was Reuter's headline suggesting that China has banned cryptocurrency. It's actually a restatement of the payment rules from 2017.
Reason 2: The Elon Musk Factor (again)
The second factor was Elon Musk, who twtted last weekend suggesting that Tesla might dump its $1.5 billion Bitcoin stash, which triggered uncertainty and a wave of selling.
This has also led to crypto bears, who states that one man's ability to swing markets underscores how immatures the crypto market is and how it lack sound fundamentals.
Reason 3: Liquidation of Leveraged Positions Amounting to $8 Billion
The third reason was the liquidation of leveraged positions. Many firms had bet on Bitcoin using borrowed money —the same way retail investors can get their brokerages to front them collateral based on the shares they already own.
when prices drop significantly, trading houses get worried and ask firms to post extra collateral. If the firms can't get do that, the trading houses will liquidate their positions to cover their exposure. $8 bil worth of liquidations happened.
Reason 4: Tether and Its Breakdown
The 4th reason is contributed by the unease over Tether's stablecoin reserves. Last week, Tether release a pie chart breakdown of its reserves since 2014
The chart showed the bulk of its reserves were in commercial paper and various loans, and not that of a bank standard. Also, Tether refused to employ a standard auditor.
Reason 5: Time to Pay Taxes?
The fifth reason is related to the tax filing for many Americans on 17 May, due to the need to report capital gains tax to Internal Revenue Service. This might have led to some sell-off as well.
All in all, these reasons coincided together to create uncertainty to the market, which led to the sell off.
Zilliqa Zebra provides news, updates, how-to, guides and all things related to the Zilliqa, the first public blockchain to implement sharding on its mainnet. Zilliqa Zebra also shares weekly price predictions on Zilliqa.
Zilliqa Zebra is an ardent supporter of the Zilliqa blockchain.
Twitter: https://twitter.com/zilliqazebra
Google Site: https://sites.google.com/view/zilliqazebra
