Deciphering: The crypto turmoil unfolds in a game of loss and gain

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Chennai:

The crypto world is in turmoil right now. News from around the world is grim. The price of bitcoin has slumped to a new low of $ 30,000, wiping out some $ 500 billion from its market cap. Ethereum, which tends to mirror Bitcoin’s price trend, has been hit hard. On July 21, it crashed more than 7% in 24 hours. The fact that one of its co-founders Anthony Di Lorio completely abandoned the crypto platform, citing its risky nature, aggravated the downfall. Di Lorio is not alone. At the beginning of May this year, Elon Musk, after defending Bitcoin (he even put the Bitcoin symbol on his twitter bio), did an about-face and criticized Bitcoin for its excessive energy consumption (Bitcoin lost almost 10 % of its value on the same day!).

The recent crypto turmoil began when China severely cracked down on its nationwide Bitcoin mining operation. China accounts for nearly 65% ​​of global Bitcoin mining. The official reason for the crackdown is to prevent individual risks from becoming systemic risks. Some analysts see this step as a preventive measure to eliminate any threat, real or perceived, for the Chinese CBDC (Central Bank Digital Currency or Digi-Yuan) project. Bitcoin mining is now on and on the hunt for cheap and / or green energy. Potential destinations range from Kazakhstan’s coal-fired power plants to Texas’s renewable energy grid. Stopping mining on such a large scale has another important consequence for the reduced hashrate of the Bitcoin network. Basically, the hashrate is the cumulative computing power of the Bitcoin network. Note that the Bitcoin protocol prevents hacking by using this cumulative computing power as a backbone of defense. As mining begins to shut down, the network becomes less and less secure. This could impact the price of Bitcoin.

While mining bans were bad enough for crypto already, country after country began to restrict crypto trading. The UK’s Financial Conduct Authority (FCA) has blocked Binance, the world’s largest crypto exchange, from offering its services. The FCA had previously expressed concern about crypto exchanges failing to meet AML (Anti Money Laundering) requirements under UK law. It is reported that the New Jerseys Bureau of Securities is considering issuing a cease and desist order on BlockFi, a leading crypto services company, to prevent it from issuing interest-bearing bids. Back in India, ED (Enforcement Directorate) served notice under the Foreign Exchange Management Act (FEMA) on the largest crypto exchange Wazirx. With so many global forces at play, Bitcoin certainly appears to be crossing uncharted territory.

(Santosh K Misra is Transport Commissioner, Tamil Nadu. The views expressed here are his own)

Disclaimer: Cryptocurrency is an unregulated digital asset and is subject to market risks

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