Trillions of dollars were wiped out in two hours. Why did cryptocurrencies drop in half in an instant?

If you have been immersed in the global secondary market for a long time, you will find that the Nasdaq index, which is dominated by technology assets, has reached a relative high point a month ago and started to fall. And former technology leaders such as Tesla have already fallen back more than 30% from their highs. Today, it is finally Bitcoin's turn.

What was originally thought to be an ordinary day was recorded in the history of the cryptocurrency industry because of a rare crash. This is also a day worth commemorating and reviewing.

「519 Big Callback」

On May 19, the cryptocurrency industry was devastated. Bitcoin fell from $43,000 to a low of $29,000, a sharp drop of $13,000 and a maximum drop of 30% in 24 hours. Such a sharp drop is not common in the cryptocurrency industry, which is known for its high volatility.

As Bitcoin "collapsed", other cryptocurrencies followed suit, with a large number of projects falling by more than 50%, with prices being halved or even shattered.

At the peak of the plunge, between 8 and 10 p.m. on May 19, Bitcoin fell below $30,000, Ethereum fell below $2,000, and mainstream cryptocurrencies fell by 30%-60%. According to Coingecko data, the total market value of the overall cryptocurrency market was less than $1.6 trillion. Just a few days ago, when Bitcoin was $62,000, the total market value of cryptocurrencies exceeded $2.5 trillion.

In just a few days, trillions of dollars evaporated.

The fierce decline triggered panic among all investors. The high concurrency of stop-loss and liquidation also tested the capabilities of the trading platform. However, even Coinbase, the largest cryptocurrency trading platform in the United States that had just gone public, experienced a brief outage, and Coinbase's stock COIN also plummeted 12% after the opening, reaching a historical low.

The plunge also brought about liquidation. According to Coin data, within 24 hours, more than 500,000 people in the cryptocurrency market were liquidated, with a liquidation amount of 6.4 billion US dollars, or about 41.1 billion RMB, which is the largest liquidation amount in a single day in history. On March 12, 2020, a day known as "312" in the industry, Bitcoin's 50% drop in a single day led to a liquidation of 22 billion RMB, which was the highest amount in history at the time. A year later, "519" broke the record.

In addition to the secondary market, the on-chain data of the blockchain also showed outliers. The Ethereum chain was congested again, and the on-chain transfer fee Gas soared to 1,000 Gwei again, close to the historical high. Binance, the world's largest cryptocurrency trading platform, also briefly suspended the withdrawal of Ethereum chain tokens due to on-chain congestion.

A few hours later, Bitcoin stabilized and rose back above $40,000. However, for those 500,000 people, they had already lost the capital to continue fighting. Just like what investors replied to Tesla founder Elon Musk’s tweet.

The "God of Chaos" reappeared when the market was howling, using the term "diamond hand", which means "firmly hold" in the stock market, which seems to express that Tesla will firmly hold more than 1 billion US dollars of Bitcoin. This time, there are no more cheers in his Twitter replies, because the accusations and regrets after the liquidation of everything were filled with the comments of this top global KOL who once single-handedly led the cryptocurrency market.

Finding the cause of the crash

After all, there are reasons for the drastic fluctuations. If we discuss rationally, there are several reasons for this halving-level fluctuation.

First, the US stock market.

Bitcoin and U.S. stocks have always been in a following state. In "Are You Thinking of Shorting Bitcoin?", Ludong explained the relationship between Bitcoin and technology assets. In the second half of last year, Nasdaq's technology assets continued to refresh their respective historical highs, but Bitcoin did not move before October, and only started its own bull market after October.

Now, it can actually be seen as following. The Nasdaq index has fallen 5% from its high point, and the leading technology asset Tesla has also retreated more than 30%. As the leading technology asset in the blockchain industry, Bitcoin's 30% level correction within 24 hours may also be due to the trend of the technology bubble bursting.

The second is policy.

Just one day before the crash, the Payment and Clearing Association of China, the Internet Finance Association of China and the China Banking Association issued a joint announcement, stating that financial institutions, payment institutions and other member units must effectively enhance their social responsibilities, and must not use virtual currency to price products and services, must not underwrite insurance business related to virtual currency or include virtual currency in the scope of insurance liability, and must not directly or indirectly provide customers with other virtual currency-related services, including but not limited to: providing customers with virtual currency registration, trading, clearing, settlement and other services; accepting virtual currency or using virtual currency as a payment and settlement tool; conducting virtual currency and RMB and foreign currency exchange services; conducting virtual currency storage, custody, mortgage and other businesses; issuing financial products related to virtual currency; using virtual currency as an investment target for trusts, funds and other investments, etc.

Time goes on. In April, China CITIC Bank issued a statement that from that day on, no institution or individual may use China CITIC Bank accounts for trading funds such as Bitcoin and Litecoin to top up and withdraw cash, purchase and sell related trading top-up codes, and transfer related trading funds through China CITIC Bank accounts. Once discovered, China CITIC Bank has the right to take measures such as suspending related account transactions and canceling related accounts.

These policies, which seem to be non-authoritative but continue to appear and become more and more frequent, are also interpreted by many as a tightening of supervision.

The spread of information such as "carbon neutrality" and mine inspections in some regions, especially the spread of views that Bitcoin wastes and consumes resources among well-known KOLs such as Musk and Bill Gates, has led to escalating panic among some individuals and overseas institutions, which may also be part of the reason for the pullback.

These are all rational discussions. Next, from an emotional point of view, this seems to be a market repair because the sentiment in the market is too high.

Invest cautiously and rationally

Everyone must remember the so-called "Zoo Market". We don't look at the later FOMO projects, but only look at Dogecoin and Shiba Inucoin.

There are many targets worthy of value investment in the industry, and they also have high rates of return in this bull market. For example, UNI, the leading decentralized trading platform, once ranked in the top ten in market value. It has become the absolute core in the DeFi field and has once changed the DeFi ecosystem, with trading volume deployed on centralized trading platforms.

But the market value of such a project is not as good as Dogecoin.

Looking at the well-known cross-chain leaders in the industry, Cosmos, and the new public chain representative Avalanche, etc., these projects at least have ecosystems, applications, teams, and users, but their market value is not as high as Shiba Inu Coin.

Without comparing with cryptocurrencies, we look at technology assets. Dogecoin’s market value was once 50 billion U.S. dollars. According to Asset Dash statistics, it ranks within the top 200 global assets. Below Dogecoin are top Internet companies such as Airbnb and Uber.

It is difficult to find a self-consistent logic to convince ourselves that there is no bubble in the market. Dogecoin and Shiba Inu Coin are just representatives of certain projects and typical examples. Are these projects really worth such a high market value?

Some people may say that this is the value of consensus or the value of a new way of playing in the cryptocurrency circle. But value has a limit. When an asset that was born out of a joke can exceed the market value of a popular Internet company after being called by KOLs, this is obviously not normal.

Bitcoin started to plummet at 8 pm on May 19th and returned to $40,000 at 1 am on May 20th. However, judging from the price, the price of Bitcoin seemed to have only fallen by single digits. However, the cooling of sentiment caused 500,000 people to lose the capital to continue fighting.

Will there be a bear market next? I don’t know. Maybe Bitcoin will continue to rise, or maybe the bull market is over now. But in any case, what is needed is for investors to remain calm.

Highly leveraged and highly hyped assets can indeed make your account look better and better, but the premise is that you can get out of the battlefield alive. In the words of a trader friend, "In a bull market, the winner is not the most important, but the survivors are the most important." The most important thing is to ensure that you stay alive.

In a strong bull market, only a few people can actually make money in the end.