A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
The world’s biggest cryptocurrency has lost over 20% in the last six days alone and is down by half from its April peak of almost $65,000.
Coinbase went public on April 14, 2021, to much fanfare and hype. It was seen as crypto’s acceptance into the mainstream. That same day Bitcoin reached an all-time high of roughly $64,000.
It’s been a bloodbath ever since then for both crypto and Coinbase. Though Coinbase shares soared to as much as $429 on the very same say the crypto exchange did a direct listing of its shares, from that first-day sugar high, COIN’s shares are down nearly 50%.
Bitcoin has also been cut in half over the past two months, briefly falling below $30,000 Tuesday morning. Ethereum is more than 50% off its highs from early May. Many other crypto assets have fallen even further with a number of tokens down 70% to 90% in value.
If you’re new to investing in the crypto space or just interested now that prices have fallen substantially, there are a number of lessons we can take away from the current crash.
Crypto is extremely volatile
The daily price volatility for Bitcoin over the past three years is 75%. In comparison, the S&P 500 daily volatility over the past three years has been 22%. So Bitcoin has been roughly four times as volatile as the stock market.
Bitcoin fell to a two-week low amid an intensifying cryptocurrency crackdown in China. The drop comes amid a growing crackdown on cryptocurrencies in China, where authorities in the southwest province of Sichuan on Friday ordered bitcoin mining projects to close.
Bitcoin tumbled almost 10% on Monday while other digital coins like Ether dropped as much as 12% in the last 24 hours, falling below $2,000 for the first time in almost a month. Dogecoin also declined 12% to trade around $0.22.
The world’s biggest cryptocurrency by market capitalization has lost over 20% in the last six days alone and is down by half from its April peak of almost $65,000. However, it has still gained over 10% this year.
China has ordered payment platform Alipay and domestic banks not to provide services linked to the trading of virtual currencies. The institutions were also ordered to cut off payment channels for crypto exchanges and over-the-counter platforms, the People’s Bank of China said in a statement.
Separately, a Chinese city with abundant hydropower has stepped up action to rein in mining. A Ya’an government official told at least one Bitcoin miner that the city has promised to root out all Bitcoin and Ether mining operations with a year, sources told Bloomberg. Some commentators, as reported by Bloomberg, have said China’s hash rate — the computational power used to mine coins and process blockchain transactions — is waning amid harsher regulatory oversight.
Data on mining is scarce. Yet the production of bitcoin in China accounted last year for about 65% of global production, according to data from the University of Cambridge, with Sichuan its second-biggest producer. Companies that mine bitcoin – an energy-intensive process – typically hold large inventories of the cryptocurrency, with any moves to sell large amounts depressing prices.
The crypto faithful are also grappling with a tumble in tokens used in so-called decentralized finance — or Defi — applications. Defi apps let people lend, borrow, trade, and take out insurance directly from each other using blockchain technology, without the use of intermediaries such as banks.
For instance, the Defi Titanium token went from being valued at around $60 to $0 — a rare occurrence even for famously volatile crypto markets. Famed mogul Mark Cuban had invested, telling Bloomberg News earlier that though it represented a small percentage of his crypto portfolio, the wipe-out “was enough that I wasn’t happy about it.”