Bitcoin is no stranger to dramatic changes in price — a few years ago the cryptocurrency was worth a few hundred dollars, before going on last month to top $80,000.
But even by those standards, yesterday was pretty wild in terms of single-day changes — the price fell by nearly 30 per cent from the day’s early highs at one point overnight.
And while the decline narrowed to below 10 per cent in the following hours, Bitcoin has still lost tens of billions of dollars in market value in 24 hours.
Here’s what happened — and yes, Elon Musk is once again involved.
Why is Bitcoin crashing?
Bitcoin has lost about 38 per cent of its value since mid-April when it hit a high of more than $81,000, according to Coindesk.
As of 11:00am AEST, Bitcoin was valued at about $46,500 Australian dollars, still substantially up from where it was one year ago.
It was a warning from China about the current usefulness of cryptocurrency set off the latest plummet in price.
Yesterday, a statement posted on the Chinese Banking Association’s website said financial institutions should “resolutely refrain” from providing services using digital currencies because of their volatility.
Almost every cryptocurrency fell after the industry group’s statement.
Most cryptocurrencies lost between 7 per cent and 22 per cent of their value, and shares of Coinbase dropped 5.4 per cent.
According to data on Coindesk, the price of Bitcoin fell by $8,000 in the space of an hour yesterday evening, to a low of $41,000, before regaining most of that loss.
Ok, so what does Elon Musk have to do with it?
If you follow cryptocurrency news, you might remember Elon Musk made headlines recently for both promoting Dogecoin, and distancing himself from Bitcoin.
Last week Bitcoin fell 7 per cent — marking the start of its current slide backwards — after Mr Musk said his company Tesla would stop accepting payments via Bitcoin.
He blamed the potential environmental damage from the high levels of energy used in Bitcoin mining.
The announcement sent Bitcoin falling and set the tone for the big pullback recently in most cryptocurrencies.
But during yesterday’s falls he tweeted emojis referencing the “diamond hands” meme.
The joke originated on Reddit and refers to people who hold onto their assets no matter what, so the tweet was interpreted as a pledge not to sell off Tesla’s substantial Bitcoin holdings.
Could a Bitcoin crash impact the global economy?
Regulators aren’t very worried about a possible crash in digital currencies dragging down the rest of the financial system or economy.
The European Central Bank said Wednesday that the risk of cryptocurrencies affecting the financial system’s stability looks “limited at present.”
In large part, that’s because they’re still not widely used for payments and institutions under its purview still have little exposure to crypto-linked instruments.
Earlier this month, the US Federal Reserve said a survey of market contacts found roughly one in five cited cryptocurrencies as a potential shock to the system over the next 12 to 18 months.
That’s a turnaround from late last year, when a similar survey found none mentioning cryptocurrencies.