5 lessons we can learn from crypto's worst week yet

Source | Decrypt, compiled by | PANews

The past week has been a roller coaster ride for the cryptocurrency industry.

On May 13, Tesla founder Elon Musk tweeted: "Tesla has suspended Bitcoin payments due to concerns about the environmental impact of Bitcoin. Cryptocurrency is a great idea and we believe it has a bright future, but this cannot come at a huge environmental cost. Tesla will not sell BTC, and once its mining method transitions to sustainable energy, we will continue to use it for transactions, and are currently considering using cryptocurrencies with lower energy consumption (<1% of Bitcoin's energy consumption)."

On May 18, the Internet Finance Association of China, the China Banking Association, and the China Payment and Clearing Association issued an announcement on preventing the risks of speculation in virtual currency transactions.

On May 22, Liu He presided over the 51st meeting of the Financial Stability and Development Committee of the State Council. The meeting called for cracking down on Bitcoin mining and trading activities and resolutely preventing individual risks from spreading to the social field.

The result is obvious. Bitcoin, which is extremely sensitive to policy changes, responded quickly and its price soon plummeted. According to Coingecko data, at the time of writing this article, Bitcoin had fallen below $35,000, a weekly drop of 25.6%, and its market value had shrunk to around $640 billion.

Many people can't help but ask, how could the cryptocurrency market be like this? First of all, it should be clear that Bitcoin will not rise forever. From Elon Musk's ridiculous remarks to excessive leverage trading, a series of events combined to cause the price to plummet. For us, what is important is what lessons can be learned from this crash.

1. Cryptocurrency is still extremely volatile

Since the birth of Bitcoin, the cryptocurrency market has easily seen sudden price surges followed by rapid price drops. In 2013, Bitcoin prices first hit $1,000 before plummeting; in early 2018, the cryptocurrency industry entered a long bear market after the initial coin offering bubble burst; on March 12, 2020, "Black Thursday," Bitcoin prices fell from a high to $3,000. Although this week's cryptocurrency market crash was not as severe as during the pandemic last March, there is no doubt that a 40% plunge is still somewhat "embarrassing." So, the first lesson we have to learn is: volatility is part of cryptocurrency, so get used to it.

2. Many mainstream media outlets are still hostile to cryptocurrencies

For many years, mainstream media have been "not very fond" of Bitcoin and often ridiculed the crypto community. Last week, many mainstream media published articles criticizing Bitcoin, including New York Times columnist Paul Krugman's article saying that Bitcoin is worthless, Wall Street Journal's well-known financial writer Greg Ip compared Bitcoin to "fentanyl", and the old political magazine The New Republic published an article saying that Elon Musk's "betrayal" would cause the cryptocurrency market to fall. It is precisely because of these media reports that the panic in the already tense crypto market has been further exacerbated.

3. Bitcoin still has a reputation problem

From cyberattacks to ransomware, many criminals prefer to use Bitcoin as a means of payment. At the same time, more and more people are discovering that Bitcoin mining can cause damage to the environment. Although these remarks seem to be amplified, it is undeniable that even though Bitcoin has been around for 12 years, it still has a reputation problem. Part of the reason is the ignorance and deep-rooted "stubborn" attitude of most people, and part of it is the crypto community's own problems. So far, there has not been an "ambassador" with a good reputation and image in the field of cryptocurrency to help the entire industry mature.

4. Coinbase disappoints everyone

When the cryptocurrency market was hit hard, Coinbase unexpectedly crashed. Although Coinbase later said that it had found the reasons why users encountered problems when logging in, checking balances and trading, and that the funds were safe, the system crash would definitely affect user confidence, and there was no need to find any excuses or reasons for technical failure. On the other hand, since listing on the Nasdaq, Coinbase's stock price has not performed well. If calculated based on the closing price of $224.35 last Friday (May 21), the current stock price has fallen by 36% compared to the listing time.

5. Cryptocurrency fundamentals remain solid

The past week has been very difficult, but unlike the "false prosperity" of the previous cryptocurrency market, many crypto projects are now actively building infrastructure, and crypto protocols such as Dfinity and Uniswap have made huge leaps. It can be said that "encryption" is no longer an abstract bet on the future, but an innovative technology that can be truly applied in reality. The technology is real and more exciting than ever.

Summarize

In 2018, MIT professor Gary Gensler asked his students in class, "How many of you own Bitcoin?" Many of them answered that they did. Now, students graduating from the most prestigious university in the United States have entered the wider financial world, and professor Gary Gensler has become chairman of the U.S. Securities and Exchange Commission.

Looking back, you will find that we have actually come a long way. So, although this week is terrible, you don’t have to lose confidence, but you should be more determined to move forward.