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Debunked: What’s Causing Prices to Fall?

China’s told banks and payments platforms to stop supporting digital asset transactions, but VCs and hedge funds are still optimistic about digital assets’ future.

Prices in the digital asset world are tumbling, everything from Bitcoin and Ethereum to smaller firms like DeFi and Dogecoin. Bitcoin’s dreadful fall from $41,000 to $31,000 has left stocks shocked (less than half of its April high of $65,000) Some investors took advantage of the low prices whilst others bailed on fast-falling tokens. However, a flood of positivity (including El Salavador’s legislation that will make Bitcoin legal tender) shows that prices are keeping afloat, just. So what’s happened since? Let’s discuss.

A look at the wider picture

China

Digital asset companies have lost $1 trillion in value since May — from around $2.5tn to $1.5tn. However, China has caused the most recent decline thanks to its major crackdown on digital assets. Sichuan has ordered mining operations to shut down, and Weibo — the hugely popular social media platform in China — has banned digital asset accounts. China’s central bank has also doubled down on warning the nation’s financial firms not to conduct any online transactions with digital assets.

According to the Bloomsburg report: “China summoned officials from its biggest banks to a meeting to reiterate a ban on providing digital assets services. It’s the latest sign that China plans to do whatever it takes to close any loopholes left in digital asset trading.”

Other potential factors

Following the US federal reserve meeting of the federal reserve, the central bank suggested they might raise interest rates sooner due to the dollar experiencing rising inflation. The dollar strengthened and stocks briefly dipped before returning to normality. Digital assets, on the other hand, continue their downward trend.

Mark Cuban’s company Iron Finance saw its prices collapse from a high of around $65 to a near-zero as panicked sellers bailed. Cuban hasn’t revealed the magnitude of his loss but he suggested it was enough to catch his attention. A reminder to digital assets beginners looking to explore high-yield DeFi projects: only invest what you can afford to lose.

Internet computer’s ICP token is down over 90% from its all-time high price set shortly after its launch in May, and EOS — which made headlines when it raised $4.1 billion ahead of its launch in 2018 — is trading 80% lower.

What investors are doing

Many investors have taken advantage of the low prices to increase their holdings. Microstrategy purchased nearly $500 million more Bitcoin as the backed their biggest corporate partner.

Are digital asset holdings good politics?

The Bitcoin2021 conference was held in Miami. There are rumours that Nakamoto has been trying to woo displaced Chinese Bitcoin-mining operations with low-energy prices and an unlimited supply of cheap nuclear power. Mayor Francis Suarez informed networks that the city is working to lower the cost of electricity and move miners to Florida. It is suggested that nuclear power is a clean source of power, in terms of climate emissions.

The National Republican Congressional Committee announced they will begin accepting campaign contributions in digital assets. Bloomberg reports: “The group said it was the first national campaign committee to accept contributions via digital assets.”

At least four hearings related to digital assets are being held by Congress. The hearings come as Washington increasingly attempts to clarify regulation around the industry.

Institutional report: VCs headset on the survival of digital assets

A survey of 100 hedge fund CFOs found that they expect to hold more than seven per cent of their assets in digital assets within five years — holdings that would total around $312bn.

Digital assets manager Grayscale is exploring 13 new products, including funds tied to Solana and Polygon. Block reports, “Grayscale is the largest digital assets manager in the world, managing more than $34bn in client assets.”

Goldman Sachs, which relaunched its digital assets-trading desk earlier this year to provide digital asset exposure to certain clients, is now expanding into Ethereum via futures and options contracts.

High-profile investors including Peter Thiel backed a decentralised autonomous organization called BitDAO’s $230 million fundraise. BitDAO will provide grants to fund DeFi projects.

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