Crypto Crash Was an Exercise in Market Manipulation
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Crypto Crash Was an Exercise in Market Manipulation

As Bitcoin is becoming a playground for entities with infinite resources, truthful news sources are hard to find.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Within a single week, from May 12th to May 19th, Bitcoin’s price dipped by over 40%. When such an anomaly occurs, everyone onboards the explanation train. Why did it happen? What market forces are responsible? Could it have been avoided? What lessons can we draw?

With so many diverging opinions popping up, you might even get attached to an explanation that leads you astray, making you commit poor investment decisions. To add to the confusion, cryptocurrencies are inherently volatile, so making a big deal out of an “anomaly” may be misplaced.

To clear up the fog surrounding this year’s biggest crypto crash, let’s first address Bitcoin’s bull and bear cycle.

Is Bitcoin’s Price Drop an Expected Price Correction?

Historically, after every halving, Bitcoin’s bullrun is triggered. Halving is the critical element that gives Bitcoin its value as a deflationary digital asset akin to gold. In a nutshell, after every 210,000 blocks mined, new BTC generation is cut in half. This then lowers the supply at the same time as it drives up the demand, reflecting the fundamental economic law of supply and demand that predates modern technology.  

Predictably, this then drives Bitcoin’s bullrun, each one longer than the last one.

Bitcoin’s bull and bear cycles, courtesy of TradingView.com (TradingShot)

Based on this clear pattern and 51% – 49% ratio between bull and bear cycles, it can be extrapolated that Bitcoin’s halving is positioned in the middle of every bullrun. From this, it can then be extrapolated further that Bitcoin’s current bullrun should end sometime during October 2021, almost half a year from now.

This corresponds with the previous projection that Bitcoin should reach $100k this year. However, the above chart is only a slice of the whole picture. Bitcoin’s stellar success attracted powerful market forces to exploit its performance, especially in the world of near-zero interest rates.  

Wall Street Trigger

Wall Street has a seemingly endless access to borrowed capital — so what happens when this capital flow is opened up to spill into the crypto space? First of all, the market begins to get leveraged with futures.

When this happens, market forces exert pressure on Bitcoin as if it is a volatile derivative. Coinbase (COIN), MicroStrategy (MSTR), SQUARE (SQ) are just some of the companies that have tied their fortune to Bitcoin (BTC). By betting on Bitcoin with borrowed money, they triggered a spree of liquidations ($8 billion so far) when BTC price dropped, which then contributed to the crypto crash.

Companies with heavy BTC investments are perceived as BTC proxies by stock market participants. (source: TradingView.com)

Moreover, the world’s largest banks – JP Morgan and Goldman Sachs – both announced in the last few weeks they would be onboarding their high-net clients into crypto. In order to enter the market at the most opportune moment, a steep dip would present itself as the perfect opportunity. While this is mere speculation, consider these two factors:

  • Wall Street and financial mainstream media are joined to the hip.
  • Wall Street has more than enough capital flow and vested interest to manipulate the market, which it has a track record of doing.

This directly ties to the next trigger for this year’s crypto crash, Dogefather Elon Musk.

Elon Musk Trigger

It is safe to say 2021 is the year when Elon Musk exposed himself as a chaotic agent at worst, or as an unserious person at best. Leaving aside Musk’s committed push for a meme coin that has no inherent value, his relationship to Bitcoin can be easily summarized like this.

However, Musk’s reneging on Tesla’s BTC acceptance for payments is not itself that important. Instead, his framing of BTC as dirty money not compatible with Tesla’s eco-friendly mission is. Such framing erodes the legitimacy and viability of BTC itself, which holds far greater significance than merely buying Tesla cars with BTC.

The Tokenist was among the first to note a coordinated media attack after Musk invested $1.5 billion into BTC. Subsequently, many studies, charts and tables have emerged showing the dishonest nature of such attacks. This created a buildup of pressure to which Elon Musk may be susceptible given his close relationship with the government’s powerbrokers.

Why did Elon Musk accept the faulty, easily disprovable premise of Bitcoin as dirty? Why did he then tweet a holding diamonds emoji, indicating Tesla’s BTC holdings would not be sold, severely contradicting himself with multiple previous statements on Bitcoin?

Imagine having 55 million followers and then NOT use this massive force to manipulate the market at a time when your core business model – selling cars and solar panels – doesn’t yield profits.

China Trigger

In a peculiar coincidence, on the same day of the crypto crash, May 19th, Reuters published an article on China’s cryptocurrency ban. This was very strange because China took no new measures against cryptos than those that had already taken years ago – related to ICOs and crypto exchanges. It still views it as a virtual commodity that is illegal to be used as legal tender.

In fact, the Chinese central bank simply restated those same rules from 2017. Reuters then reported this as ground-breaking news, which had been picked up by dozens of other financial media outlets. What are the chances that Chinese officials, tied to global capital, would spark such media frenzy?

It turns out, the odds are pretty high. A day before the crypto crash, a 4CHAN user posted this prediction. Presenting himself as one of the “recycled White guys” working for a large Chinese firm, he framed China’s central bank coincidental “crypto ban” restatement as a move against a competitor in the financial arena.

Image credit: 4CHAN and Reddit

Panic Sell-Off Wiped Out the Wealth of Millions

Unfortunately, it is one thing to make a case for resisting panic-selling, and another altogether to follow through. In the last couple of years, millions of people entered the crypto arena, unaccustomed to big market swings. As a result, panic-selling wiped out many savings accounts and investment portfolios.

The good news is that crypto space has expanded so much that it affects even those not tied directly to it. The bad news is that whales moving into crypto space at an increased rate represent a completely new factor to consider. With access to limitless funds and media outlets, they can exploit it to great extent.

Be that Elon Musk, American banks, or Chinese capital, they all form a pool of global power inaccessible to ordinary people. However, Bitcoin’s fundamentals still remain strong, so it probably won’t be surprising if we see a strong rally.

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BTC is already recovering from panic sell-off, as predicted by previous price swings of this scale. What are your thoughts about the news generated by the mainstream media about China’s crypto ban? Let us know in the comments below.

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