Crypto has been having a wild few weeks, to say the least. So, let’s explain what’s happening and where this may be heading. Once we’ve covered that, we’ll dip into some of the key fundamental events happening this week.
Let’s do this.
The Crypto Crash
If you’re a crypto trader or investor, you may still be staring in disbelief at your portfolio. Depending on your timing, it was either a bloodbath or an excellent opportunity to buy. Such is the duplicitous nature of market trading and the reason for the * trading is risky disclaimers.
Whatever side you were on, the numbers began tumbling faster than we’ve seen for a little while. At the time of writing, Bitcoin (BTC) and Ethereum (ETH) are both down around 30% since mid-May. While the overall crypto market cap dropped by a ridiculous 51.68% at its lowest point. Ouch.
As you can see, things did recover slightly from that drop, but the market cap still sits some 41% down from mid-May highs, at the time of writing.
Why did Crypto drop?
Crypto enthusiasts are well-versed in volatility. It’s a staple condition of the market. But this particular crash was a little different as it appeared to come out of nowhere.
Now the dust has settled a bit, the picture is slightly clearer.
One influencing factor was Elon Musk’s announcement that Tesla would be suspending its acceptance of Bitcoin as a form of payment over fears related to its potential impact on the environment.
Many see the adoption of Bitcoin by major retailers and household brands as key to crypto’s wider acceptance as a legitimate form of currency or payment. With Tesla so clearly distancing itself from the crypto, many began to worry that this might cause a domino effect. Many were also furious at Musk for again appearing to manipulate the market to suit his own purpose.
Coincidently, around the same time that this was happening, China began cracking down on cryptocurrency as well. While China, not known for its freedoms, has long stood against crypto, it recently announced that it would beef up its penalties for those caught mining Bitcoin. It’s estimated that 75 per cent of all Bitcoin mining happens in China, and many feared that this crackdown could affect the global crypto market.
What’s the outlook for crypto?
Firstly, let’s put this all into perspective. A drop of 30% or so is not a huge rarity for BTC and ETH traders or HODLers. Both cryptos have previously survived seeing up to 80% of their value wiped off the table in one go.
The speed of that 10% recovery last week is mighty important, too. It shows investor resilience and just how mature this market has become over the last few years. Where some saw this as Doomsday and jumped to sell, many other investors watched, waited and made their move when they saw the trend bottoming out.
It’s this kind of behaviour that stands crypto in good stead of the future. Trading is all about seizing opportunities when they’re presented to you. This was a good test for the market and it looks like it passed. Not exactly with flying colours, we might add, this was a B- effort at best.
Looking at the wider picture, the slow but very definite bounce back should be seen as a triumph. As for the mining situation, it’s almost certain that people will continue to find a way, just as they have previously.
And a final point on Elon — he’s already started a dialogue with US-based BTC miners over the use of more renewable forms of energy for mining.
Storm in a teacup? Maybe.
What’s on the trading agenda this week?
A really busy week lies ahead. Here are all of the top events to take note of.
● CNY — NBS Manufacturing PMI (MAY)
● EUR — German Inflation Rate YoY Prel (MAY)
● AUD — RBA Interest Rate Decision
● EUR — Unemployment Change (MAY)
● EUR — Core Inflation Rate YoY Flash (MAY)
● CAD — GDP Growth Rate Annualized (Q1); GDP Growth Rate QoQ (Q1)
● USD — Markit Manufacturing PMI Final (MAY); ISM Manufacturing PMI (MAY)
● AUD — GDP Growth Rate YoY (Q1)
No major events scheduled.
● CAD — Employment Change (MAY); Unemployment Rate (MAY)
● USD — Non-Farm Payrolls (MAY); Unemployment Rate (MAY)
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The Contentworks team