Tesla CEO Musk "changed his mind", cryptocurrencies plummeted across the board, there may be deeper reasons behind it

Cryptocurrency flash crash! At around 6:00 am Beijing time on May 13, the price of Bitcoin fell rapidly, down nearly 15.29% in 24 hours, Ethereum fell more than 10%, Ripple fell more than 17%, Shiba Inu fell nearly 40%, and Dogecoin fell 17%.

On the news front, Tesla CEO Musk announced on social media that Tesla has stopped accepting Bitcoin as a payment method due to concerns about the environmental problems caused by mining. This may be the direct cause of this round of cryptocurrency plunge.

However, many analysts told the International Financial News that an important logic behind this round of Bitcoin bull market is the Fed's monetary easing and the abundant liquidity of the US dollar. However, the year-on-year increase in the US Consumer Price Index (CPI) in April was much higher than market expectations, and investors doubted whether the Fed could maintain controllable inflation, leading to a plunge in US stocks and gold, which may be the deeper reason for the Bitcoin plunge.

Many cryptocurrencies suddenly plummeted

Bitcoin plunged again! At around 6:00 am Beijing time on May 13, the price of Bitcoin began to fall rapidly, falling by more than $10,000 in a short period of time, reaching a low of $45,500, a drop of more than $10,000 from the intraday high, and a 24-hour drop of nearly 15.29%.

Due to the sharp drop in Bitcoin, the overall cryptocurrency market has seen a sharp drop, with Ethereum falling by more than 10% and Ripple falling by more than 17%. The recently popular Shiba Inu coin fell by more than 40% in 24 hours, and Dogecoin (DOGE) fell by 17%.

As cryptocurrencies plummeted, data from Bitcoin Home showed that more than 310,000 people had their positions liquidated in the past 24 hours, with 24.175 billion yuan in assets wiped out.

In fact, Bitcoin's plunge has become a normal occurrence. On the morning of April 23, Bitcoin fell below $50,000, the first time since March 8. Then at 15:59 on the same day, Bitcoin fell below $48,000. Earlier on the morning of April 18, Bitcoin plunged nearly $8,000 in an hour, a daily drop of more than 15%.

At that time, the flash crash of Bitcoin also led to a collective plunge in cryptocurrencies. When Bitcoin fell below the $50,000 mark, Ripple fell more than 15%, and Ethereum fell more than 9% to around $2,253. When Bitcoin plummeted 15% during the day, Ethereum plummeted 20%, Binance Coin plummeted 17%, Ripple plummeted 26%, Dogecoin plummeted 19%, and Litecoin plummeted 28%.

As of 5:55 a.m. on May 13, 2021, the value of cryptocurrencies has rebounded slightly, but is still falling overall. According to Coindesk data, Bitcoin fell 14.1%, Ethereum fell 14.48%, Persian fell 15.57%, and Dogecoin fell 24.19%.

Musk is shorting Bitcoin

The recent Bitcoin crash has led to a sharp drop in cryptocurrencies, and most analysts attribute the direct cause to the "rebellion" of Tesla founder Elon Musk.

Jiang Zhaosheng, an analyst at Zero One Think Tank and a researcher at the Digital Asset Research Institute, also told the International Financial News reporter that the most direct reason was that Musk's short selling caused market panic.

Liu Feng, director of the Blockchain Technology and Application Research Center of the Institute of Artificial Intelligence and Change Management at Shanghai University of International Business and Economics, told the International Financial News that Musk's article stating that Tesla has suspended accepting Bitcoin payments sent a signal that Musk is bearish on Bitcoin, leading to a lot of capital withdrawal (from the Bitcoin market).

"Musk's announcement that Tesla will suspend Bitcoin purchases is one of the reasons for this round of declines." Huobi Group senior analyst Jiang Mengchu told the International Financial News reporter, "Musk's previous remarks and Tesla's operations have repeatedly affected the short-term price trends of Bitcoin and Dogecoin."

On May 13th, Beijing time, Tesla CEO Elon Musk tweeted: "Tesla has suspended the use of Bitcoin to pay for car purchases and is considering using cryptocurrencies with lower energy consumption. We are concerned about the rapid increase in the frequency of fossil fuel use in Bitcoin mining and transactions."

But Musk continued to emphasize that cryptocurrency is a good step forward in many ways, and Tesla believes that it has a promising future, but this cannot be achieved at a significant cost to the environment. As part of its balance sheet, Tesla will not sell any Bitcoin. As long as Bitcoin mining transitions to other sustainable energy sources as soon as possible, Tesla intends to trade in Bitcoin. Tesla is also seeking to use other cryptocurrencies that consume less energy than Bitcoin.

Reporters learned that Musk’s announcement to suspend Bitcoin purchases came less than two months after Tesla announced that it would accept Bitcoin payments. According to Tesla’s US official website, Bitcoin was already supported for Tesla car purchases on March 24. At that time, Musk also announced on Twitter: “You can now use Bitcoin to buy Teslas.”

The surge in inflation may be due to a deeper reason

Although Musk's bearish comments on Bitcoin directly triggered a sharp drop in cryptocurrencies, analysts believe that there are deeper reasons for Bitcoin's pullback this time.

Wang Haifeng, senior researcher at OKLink, told the International Financial News reporter that the year-on-year increase in the U.S. Consumer Price Index (CPI) in April, released on May 12 Eastern Time, was much higher than market expectations, causing both U.S. stocks and gold to plunge. This may be the deeper reason behind the recent plunge in Bitcoin.

"An important logic behind this round of Bitcoin bull market is the Federal Reserve's money printing and the extremely abundant liquidity of the US dollar. As the market's expectations for the Federal Reserve to raise interest rates before the end of 2022 have increased significantly, it is reasonable that Bitcoin, as a beneficiary of this round of abundant liquidity, has been killed." Wang Haifeng said that according to data monitoring related to the OKLink block browser, since Bitcoin hit a historical high in April, the number of wallet addresses holding more than one Bitcoin has decreased, which may also mean that some investors choose to sell Bitcoin at the current price for profit.

Jiang Mengchu also said, "Investors have been worried about a sharp rise in inflation, as this could squeeze profit margins and erode corporate profits. If price pressures continue to overheat for a period of time, the Fed will be forced to tighten monetary policy. Judging from the market performance this week, investors have doubts about whether the Fed can maintain controllable inflation. Affected by this, the three major U.S. stock indexes all showed a weak trend of three consecutive negative daily lines, and the crypto market also responded to concerns about tightening funds by selling assets."

Liu Feng pointed out that this round of plunge was mainly due to the market rising too fast, "It is impossible to continue to grow, the market must correct". Recently, various animal coins in the crypto market are hot, with Dogecoin (DOGE) as the pioneer, and the increase in the past month has reached nearly 10 times. Various animal coins such as Shiba Inu Coin (SHIB), Akita Inu Coin (AKITA), and Pig Coin (PIG) ​​have begun to rise. In addition, some "just for fun" coins such as LowB and SAOB, it can be said that altcoins are flying together.

Jiang Zhaosheng said, "Under the current 'crazy animal coin market', such a drop may not be a bad thing."

"Their popularity is partly due to the capital spillover effect in the context of the bull market and the rise of the community economy. However, some of these currencies are not technologically innovative and have no mature products, so the price fluctuation range is inevitably large," Jiang Mengchu analyzed.

As for the future market trend, Jiang Zhaosheng said that the fundamentals of the Bitcoin market may have also changed. The future market will depend on whether Bitcoin can maintain the support level of $45,000. If it can, the bull market may continue.

Wang Haifeng pointed out that in the future market, on the one hand, we can pay attention to whether the Federal Reserve will take more actions in the direction of raising interest rates and shrinking its balance sheet. On the other hand, we can also pay attention to whether Bitcoin whales and institutions or entities that have announced the purchase of Bitcoin, including Tesla, have a tendency to sell.

Jiang Mengchu reminded that "the recent decline shows that Bitcoin volatility is still relatively high. Since the equity mechanism and technical support behind it are significantly different from traditional investment assets, when participating in Bitcoin or other encrypted assets, especially many new currencies that have not been tested by time, risk control needs to be put first. We should wait patiently for the end of the long-short game and wait for the market to choose a direction before following."