Fear, Uncertainty and Doubt (FUD) took over Indian investors in crypto assets on Wednesday as Bitcoin, the world’s most valuable and best-known crypto token, posted its biggest single day fall in nearly a year.
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After Tesla Inc.’s founder Elon Musk said last Thursday that the electric car maker
would no longer accept bitcoins as payments, the token fell from its peak of $57,000 last week to about $32,000 at one point on Wednesday before clawing back to around $39,000.
China’s move to ban its financial institutions and payment companies from providing crypto transaction services also had a detrimental effect.
The volatility came as a shock to investors in the Indian cryptocurrency space, several of whom are new and have never experienced such a major volatility in crypto assets. Besides, Indian crypto investors have also been facing regulatory uncertainty as major banks and payment gateways
have distanced themselves from crypto exchanges recently.
In fact, domestic crypto exchanges went into a “downtime” on Wednesday, unable to handle heightened trading volumes—basically, with people lining to buy at the dip and others looking to sell fearing further downside.
Also read today’s ETtech Morning Dispatch for an in-depth crypto coverage
“Bitcoin has still increased 6x over last year, attracting a lot of new investors who have not yet convinced themselves of its long-term potential and they have got spooked easily,” said Sandeep Goenka, who co-founded crypto exchange ZebPay, but has since moved and now invests in crypto and crypto startups. “We call it bitcoin moving from new weak hands to old strong hands.”
At India’s largest crypto exchange WazirX, the downtime came after a 400% surge in traffic compared to the previous months. Peer CoinDCX also went into “maintenance downtime” the same day, while the servers of Binance and Coinbase, two of the biggest crypto exchanges in the world, also slowed considerably.
WazirX catches a cold every time the crypto world sneezes
‘Too Soon to Predict Future’
“A lot of investor chatter has been around seeing this as a buying opportunity. Many who were waiting on the sidelines for prices to cool are now beginning to take new positions at these levels,” said Nischal Shetty, founder and chief executive officer of WazirX.
Chief executives of Indian crypto exchanges said it was too soon to draw conclusions on Bitcoin’s future and whether the industry overall is in the grip of bears.
In the past week, other global crypto assets such as Ethereum and Binance’s token also plunged by as much as 25% and 33%, respectively. According to Coingecko.com, nearly 50% of the entire crypto sector’s market capitalisation has been wiped off between May 13 and May 20.
“On the way down, retail investors have the bad habit of averaging down,” said Nithin Kamath, founder and CEO of online stock brokerage Zerodha, warning crypto users against buying more at lower prices to make up for losses suffered earlier. “The issue with this is that slowly the portfolio keeps getting concentrated to a single security and the risk goes up significantly.”
(Graphic: Rahul Awasthi/ETtech)
According to crypto industry insiders, a correction had long been overdue, and a few international institutions had liquidated their Bitcoin positions in recent weeks as prices reached unrealistic levels.
“If you assess the fundamentals, re-correction was anyway on the cards. Unfortunately, new entrants weren’t aware of this and they are going to always curse the market after getting their hands burnt,” said Akshay Aggarwal, the founder of Blockchained India, a pan-India community of over 30,000 blockchain practitioners. “It’s important for everyone to remember that the price always goes up significantly from one bull run to another.”
WazirX’s Shetty added that the next week or two “will make it clearer if this is Bitcoin’s bottom or whether it will test newer lows.”
Crypto is a nascent industry compared to stock markets, which is almost 40 times larger, and this can cause more volatility as the order books are not too deeply populated, said Ashish Mehta, co-founder of crypto exchange DigitX. “We see a lot of people exiting in panic and a larger lot moving in to pick up the assets at cheaper prices. Only one set among them would be smiling; which one, we will know soon,” Mehta said.
Too much supply of Bitcoin and the token’s failure to breach $60,000 despite its recent rallies caused Vivek Thebaria, a full-time trader and investor from Navi Mumbai to book profits.
“Big institutions selling could reverse the flow of any asset (both on the upside or downside),” Thebaria said, adding that he would invest again once prices stabilise.
Bitcoin’s crash induced anxiety globally.
(Graphic: Rahul Awasthi/ETtech)
The “buy the dip” hashtag had over 19,000 posts trending in three hours on Wednesday and could be well over 1.3 million in the last couple of days, said Praanesh Bhuvaneswar, chief exeuctive of Qoruz, an influencer marketing and intelligence platform.
On Google, queries for ‘Will Bitcoin recover?’ spiked 2,400% worldwide between May 13 and May 19.
Founded in 2008, Bitcoin has experienced extreme price volatility often on the back of external factors such as government bans, news of hacks, and most recently, tracking the whims of Elon Musk.
Just before Tesla said in February that the electric car maker had invested $1.5 billion in Bitcoin, the token’s price was around $40,000.
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