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May 26 ยท Last update 10 days ago.

What can we learn from the recent crypto-crash?

The third week of May 2021 saw a huge crash in cryptocurrency markets, with market leader Bitcoin declining by 30% to $30,000, and while they recovered slightly cryptocurrencies are thought to have lost around $1 trillion in their market value during this week. While crypocurrencies are known to be volatile many long-term investors will be taking the long view and looking back at the incredible growth of cryptos such as Bitcoin. But is there anything else that this dip tell us or that we can take from this crash? What can we learn about cryptocurrencies from the May 2021? What caused the dip? Does this tell us anything about crypocurrencies in the long term?
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Still a good investment
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Bubble
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Extreme volatility issues
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Elon Musk and environmental risk
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China and the regulation problem
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Still a good investment

The May 2021 crypto-crash is nothing to be concerned about for the majority of investors and doesn't detract at all from the massive importance crypocurrencies represent as a decentralised currency, and in many ways downturns like this are the best time to invest. Bitcoin has been an extremely sturdy and stable investment, increasing in value for 3,568 of the 3,978 days of its existence, that's nearly 90% of its time to date. Founder and CEO of Miller Value Partners investment management company, Bill Miller, remains confident in Bitcoin's future as a result of this solid history. Miller stressed that an asset that has grown like Bitcoin is even better at low prices than at high prices as it has shown such solid growth; if you invest after a dip like in May 2021, you are guaranteed a good return on your investment.

techshout.com/business/2021/20/bitcoin-still-an-attractive-investment-despite-lastest-crash longhash.com/en/news/3213/Despite-Crash,-Most-Bitcoin-Investors-Are-Likely-Down-Less-Than-$200 cointelegraphe.com/bill-miller-bitcoin-still-a-safe-investment-despite-market-crash

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D H
Jun 10
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Bubble

Cryptocurrencies are a speculative bubble and even Ethereum co-creator Vitalik Buterin has indicated this was the case claiming he was not surprised by the 2021 crash, something we have seen many many times before. Cryptocurrencies have boomed and then crashed numerous times in the last 4 years, starting on 22 December 2017, again on 12 January 2018, and 15 November 2018. Then in early 2021 Bitcoin's price boomed by 700% before crashing on the 19th May, falling 30%, while Ethereum lost 40%, and Dogecoin 45% in a serious market-wide crash. According to Buterin it is "clear that the technology isn't there yet", so in the mean time cryptocurrencies remain just another form of speculation or gambling.

edition.cnn.com/2021/05/22/investing/crypto-crash-bitcoin-regulation/index.html cnbc.com/2017/12/04/bitcoin-is-a-dangerous-speculative-bubble-yale-expert-says.html businesstoday.in/markets/commodities/crypto-in-free-fall-bitcoin-tanks-30-to-31000-ethereum-loses-40-dogecoin-down-45/story/439508.html

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D H
Jun 10
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Extreme volatility issues

Cryptocurrencies are just far too volatile to use as a unit of exchange, and an example of this volatility will inevitably lead to the types of crashes we have seen on the 19th of May 2021. While celebrities buying in to a volatile asset such as Bitcoin can be good for investors they can also add to the volatility of such an asset and make downward turns in value much more severe. As a result cryptocurrencies just don't make a good storage of value and will not rival traditional forms of currency, and this is why economists and politicians remains so divided on the issue.

bloomberg.com/news/articles/2021-05-20/crypto-crash-autopsy-shows-billions-erased-in-flash-liquidations independent.co.uk/life-style/gadgets-and-tech/news/bitcoin-latest-price-too-volatile-money-currency-davos-2018-world-economic-forum-invest-a8179541.html

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D H
Jun 10
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Elon Musk and environmental risk

In May 2021 electric car manufacturer Elon Musk tweeted that his company Tesla would no longer accept bitcoin for purchase of their vehicles, prompting a massive sell off by investors that resulted in the 2021 cypto-crash. Musk cited "environmental concerns" as the reason for this turn around, and considering Musk's grand goals of establishing life on Mars before dealing with the climate crisis on Earth, this was quite a poignant turn around, hence the crash. But this highlights what should be the main detriment of cryptocurrencies, far beyond crime or volatility risks, they are simply too environmentally risky, requiring the computing power and therefore energy resources as entire nations or even groups of nations to function.

aljazeera.com/economy/2021/5/19/crypto-wipe-out-bitcoin-ether-doge-all-plunge-lower cbsnews.com/news/bitcoin-crypto-prices-elon-musk surfertoday.com/environment/why-cryptocurrency-mining-is-an-environmental-disaster

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D H
Jun 10
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China and the regulation problem

While cryptocurrencies have many hopeful attributes we need to remember they are susceptible to aiding crime and criminal economies and may be viewed as a threat to a national fiat currency, or worse society, and therefore be restricted or banned. This is what preceded the May 2021 crash when three Chinese banking organisations warning China's financial institutions not to conduct transactions with cryptocurrencies or exchange them for fiat currency. This is nothing new for China as they have restricted cryptocurrency use in 2017, banning initial coin offerings and companies using digital tokens. While the tax havens and states that facilitate money laundering internationally may continue to allow the use of crytocurrencies, until intrinsic links with crime are solved we are likely to see more restrictions from states trying to fight corruption in the future.

cnbc.com/2021/05/19/bitcoin-btc-price-plunges-but-bottom-could-be-near-.html compliancemitigation.com/cryptocurrency-and-money-laundering-concerns

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D H
May 26
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