Cryptocurrency market hits reverse as mood turns sour

The mood across the cryptocurrency has  turned sour as a combination of new developments, lofty valuations and looming tax impact hit the risk appetite.

As of press time, Bitcoin (BTC) is changing virtual hands at US $48,500, Ether (ETH) at US $3,760, ripple (XRP) at US $1.3, Binance Coin (BNB) US $589, cardano (ADA) at US $1.57, Dogecoin (DOGE) at US $0.39, ChainLink (Link) at US $42, UniSwap (UNI) at US $36, Polkadot (DOT) at US $35 and Stellar (XML) at US $0.58.

Here are the key developments that wiped out the moderate gains made over the past week:

1. Tesla SEO Elon Musk's announcement that Tesla will no longer accept bitcoin for purchase vehicles due to the serious concerns about its energy intensity in mining. What did Elon Musk said about bitcoin?

   We are concerned about rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel. “Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment. “Tesla will not be selling any bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy. “We are also looking at other cryptocurrencies that use (less than 1 per cent) of bitcoin’s energy/transaction.”

2. Upward traction running out of steam.  While it is impossible to pin everything on one specific factor, it looks like investors and traders are becoming increasingly wary about the prospects of new tax policies in the US and around the world, and tightening bank regulations,  and are thus less willing to hold onto assets with sky-high valuations which can tumble at any time. As we explained earlier this week, the pullback has been in the swing from the previous week as the market lost the momentum to push higher despite multiple breakout attempts. From technical side, the sustained rally over the past weeks have pushed valuations to levels considered as overbought thresholds by many traders and speculators. So, it makes sense for the big players to take the profit and run away. From massive selloff volumes, it indeed appears many traders and speculators are moving to lock in gains now before a potential selling spree that could be triggered in anticipation of President Joe Biden’s capital gains tax (CGT) hike. From the looming legislation aspect, the move makes sense since the tax would later disproportionally affect late sellers of the assets that have generated massive unrealized gains.
3. Market noise and buzz around joke currencies and their surge have discouraged serious investors as they fear such speculations threaten the global institutionalisation of the serious technology and innovation. At the same time, some big players used the frenzy to make large gains from such currencies and they don't seriously believe in the future of such joke currencies. So, their exit to take profit creates obstacles for the market's upward momentum.
4. Seasonality. Unless you’ve been living under a rock, you have heard of “Sell in May and Go Away” – an old stock market adage backed by surprisingly robust historical data, especially in Europe where market activity slows down due to upcoming summer and holidays. Historical data show that overall market returns in many countries during the May-October period are systematically negative or lower than the short-term interest rate. The effect has been strongly present and consistent in most developed markets (including Australia, the United States, Canada, Japan, the United Kingdom and most European countries). As a result, many experienced investors try to offload their holdings from April to May to preempt the expected retreat.

There have also been other relevant developments which unlikely pose a significant risk, but would add to the subdued sentiment. An Australian programmer who claims to be Satoshi Nakamoto has launched a London High Court lawsuit against 16 software developers in an effort to secure bitcoin worth about $US5.7 billion he alleges he owns.

Risk Warning: Cryptocurrency is a unregulated virtual notoriously volatile instrument with a high level of risk. Any news, opinions, research, data, or other information contained within this website is provided for news reporting purposes as general market commentary and does not constitute investment or trading advice.