31st May 2021

What’s Fuelling the Current Crypto Pullback?

Article Table of Contents:

Departure of Institutional Investors
China’s Negative Stance on Crypto Assets
What Does This Mean and What Does the Future Hold?

High volatility is a key feature of Crypto trading. After reaching all-time highs in mid-April, Bitcoin plunged to 3-month lows on May 19, 2021, dropping temporarily to $30,000 on May 21. Ethereum (ETH) was also down more than 40% in less than 24 hours, breaking below $2,000. 

This dramatic pullback in Bitcoin and other cryptocurrencies put a halt to the prolonged rally that began in Q1 2021. The total cryptocurrency market cap plunged another $300 billion on May 23, reaching a new post-peak low of $1.2 trillion.

Departure of Institutional Investors

Bitcoin lost 12% on May 12, as negative tweets from Elon Musk dampened sentiment. His recent decision to suspend Tesla vehicle purchases using BTC, citing environmental concerns, caused a $365 billion wipe-off in the cryptocurrency market.

News like this led to fear and uncertainty in the market, giving rise to a huge crypto sell-off. While this may be intimidating to novice traders, those who are familiar with crypto trading are aware that such market corrections occur from time to time.

China’s Negative Stance on Crypto Assets

Some governments and regulatory bodies have been taking a negative stance on cryptos lately. First, the market experienced the Ripple lawsuit, and then China banned its payment companies and trading platforms from offering crypto trading services mid May 2021.

China’s reluctance regarding cryptocurrencies has a long history. In 2017, it had shut down the local exchanges that accounted for a huge percentage of Bitcoin trading worldwide.

Unfortunately, it isn’t only China. On May 21, 2021, US Fed Chairman Jerome Powell said cryptos are a risk to global financial stability. He also hinted at stronger crypto regulations in the future. 

What Does This Mean and What Does the Future Hold?

Bitcoin is still up more than 30% YTD and 300% in the last 12 months. Some analysts argue that BTC as an asset is volatile, but the market is mature enough to handle such challenging periods. 

Crypto CFDs could prove useful in navigating such extreme volatility in the markets. Whilst some traders perceive market volatility as trading opportunities since CFDs provide the flexibility of trading both rising and falling markets, it is crucial for traders to be aware of developments and ensure that risk management measures are in place to protect their portfolios if trading under these circumstances.

Do you think cryptos will go through further correction? Tweet us your thoughts at @CryptoGTGlobal.
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