The crypto collapse script may have had Bitcoin as the lead actor but the supporting cast from altcoins to crypto exchanges all felt a jolt as at the lowest point $1,000,000,000,000 were wiped out from the crypto universe.
The crypto in lead supporting role was Ethereum that collapsed over 44% from $3400 to $1900, as brutal selling spread to the second-biggest cryptocurrency extending the bitcoin rout. Meme inspired Dogecoin, which is the recent favourite of tecknoking Elon Musk, also halved from 43 cents before rebounding sharply as well. Closer home Sandeep Nailiwal founded MATIC/Polygon that crossed $10 billion in marketcap last week also fell from $2.5 level to as low as $1, only to bounce back to $2.3.
Crypto exchanges outage
Adding to the woes of the crypto investors, leading crypto exchanges like Binance, WazirX and CoinCDX crashed during the peak hours on Wednesday sell-off. As investors started complaining about the outage on Twitter, network congestion and huge traffic were some of the reasons quoted by these exchanges. "Some of our fiat channel partners can't handle the load on their side now. But they are very excited about the growth in users we brought to them,” World’s leading crypto exchange Binance said on Twitter apologising for the inconvenience. India’s largest crypto exchange WazirX also acknowledged that its users were facing delays in trading, viewing order books, and trade history on WazirX app and website. A lot of users were automatically logged out of their CoinDCX account and were not able to log in post that, as seen in a lot of Twitter complaints. However, the issues were resolved later in the night on Wednesday.
Leverage trading
Even though many influencers and experts in the crypto ecosystem asked their followers to not panic-sell, most of the investors who lost money on Wednesday were those who were leveraged heavily. As Zerodha founder Nithin Kamath pointed out, crypto exchanges offer 10 to 100 times leverage these days. He added that if an exchange offers 50 times leverage and say Bitcoin goes down 4% in one tick, a customer with $1K, can lose $2K. As per the data from bybt, more than 7.25 lakh traders and $8.11 billion were liquidated in those peak hours. It should be noted that almost one-third of the liquidation happened on a Chinese crypto exchange platform Huobi. As many experts mentioned, liquidations indeed played a major role in the meltdown on May 19.
"Buy the dip"
Then the question that came across investors' minds was that the best time to #buythedip as those who had sat out the dizzying crypto rally. Historical data clearly favoured the argument as every sharp drop has been followed by an equally ferocious rebound. Siddharth Menon, founder of India’s biggest crypto exchange WazirX, in a tweet, said that a market correction is a good thing and there is no need to panic. Nothing goes up in one direction he added. Menon also posted Gold’ 1980 chart and wrote that Gold's volatility was (-)66% in 30 months. New markets are volatile in nature, but as it matures and as we see more investors like institutes come on board it gets better, Menon said in a tweet.
China's crack down
The path ahead for crypto is set to be volatile with Chinese authorities now looking to 'crack down' on mining and trading of digital tokens as well. As India awaits a formal legal framework the central bank continues to ‘direct’ lenders to distance themselves from cryptocurrency exchanges like WazirX, BuyUCoin and Zebpay.
Fear & greed index
Fear and greed index, a multifactoral crypto market analysis tool, fell to as low as 11 after Wednesday's sell-off. The index ranges from 0 to 100, where '0' means the highest level of fear and '100' means greed. The index was above 70 levels before Elon Musk started criticism of Bitcoin in the second week of May. Crypto markets experts, however, suggest the smartest time to invest is when the fear is high.
So if you are looking for a ride on the crypto craze, make sure you have your seat belts on and know your way to the exit.