💔 Elon Musk and Bitcoin
The Intelligent Insurer #17 — The cryptocurrency market weathers turbulent conditions amid a series of negative news developments
Elon Musk undeniably has a huge impact on price movements in the cryptocurrency market. Throughout 2021, Musk’s actions and utterances have had a significant effect on how the price of bitcoin has unfolded. His recent outbursts have caused considerable contention among cryptocurrency users. The industry seems to be divided between Musk supporters and Musk critics.
The recent slump in Bitcoin price and other cryptocurrencies was one of the rare events where a price movement can be tied directly to a news development. Comments by Musk spurred a significant sell-off in the market.
In the latest Intelligent Insurer, we detail some of the recent price movements and the role Musk had to play. Before diving into these developments, we have an important update to share on the progress of Insured Finance.
Insured Finance Smart Contract Approaches Deployment
Insured Finance is currently testing its smart contract technology. The smart contract technology needs to be rigorously tested before being deployed. This is a critical phase and one which is often neglected by many cryptocurrency projects.
As noted in research issued by the University of West Scotland School of Computing, “a smart contract cannot be modified or updated for security patches” after being deployed to the blockchain. While smart contracts can facilitate automated and decentralized computing based on predetermined conditions, they can also be exposed to multifaceted attacks.
Deca-millions of USD value has been lost in even single instances of smart contract hacks. In December 2020, Compounder Finance had its smart contracts drained of roughly $10.8 million worth of wrapped BTC, Ethereum, and DAI. On aggregate, the total value lost due to insecure smart contracts is more likely to number in the hundreds of millions or even billions.
Insured Finance is committed to ensuring that its users do not incur such losses. To that end, Insured Finance has put its smart contracts through a rigorous testing process that involves a large development team and multiple third-party audits.
The Insured Finance smart contract technology testing process is close to completion. Once the development and code review is finalized, the relevant code changes will be made to the front. After these changes, the smart contract will be deployed on the test network and a beta version of the Insured Finance application will be available for use. The smart contract and beta version of the Insured Finance application are in line to be released in June.
Musk’s rapid-fire statements
On May 17th, Bitcoin price slipped to below $45k for the first time since it achieved an all-time-high (ATH) of over $64k roughly one month ago. The drop this time was swift and charged through some significant support levels. The falling price was largely unexpected by the majority of crypto users since there was no significant technical indicator that suggested such a pullback.
The initial sell-off that brought bitcoin price into such territory was instigated by comments made by Musk. On May 13th, Musk shared that Tesla will no longer accept Bitcoin for car purchases. His reason was mainly due to the environmental concerns associated with Bitcoin mining. Bitcoin recorded a ~12.5% decline for the day of trading.
Musk was criticized by several cryptocurrency users who believed that Musk was using his influence to manipulate the crypto market. The criticism intensified after Mush began advocating for Dogecoin. On May 14th, Musk shared that he is working with “Doge devs to improve system transaction efficiency”. Dogecoin reached a high of ~$0.59 on the day and has since declined to a local low of $0.21.
Days after that, Musk made a suggestive response to a tweet that suggested that Tesla might sell off its Bitcoin holdings by the next quarter. This exacerbated the FUD and sparked a three-day decline which brought bitcoin to a low of ~$31k.
Further FUD fuels more selling
Apart from the Musk factor, another reason that is suggested to be behind the recent sell-off throughout the cryptocurrency market is Tether’s recent disclosure about its stablecoin’s reserves. The breakdown, which revealed that Tether’s (USDT) reserves were not invested in “short-term, lower-risk, liquid securities,” but rather credit assets, spurred further selling as holders scrambled to reduce their risk exposure in the market.
More negative news would be released, further strengthening the bearish sentiment. The Chinese government announced intentions to clamp down on cryptocurrency-related businesses. The United States Treasury Department requested that all cryptocurrency transactions exceeding $10,000 to be reported to the Internal Revenue Service.
Speculators maintain bullish outlook
Although the cryptocurrency market weathered some harsh conditions recently, many speculators maintain a bullish outlook. Several see the pullback as an opportunity to increase their holdings.
According to data from Bitcoin Treasuries, institutions have acquired roughly $10 billion worth of bitcoin over the past month. Despite negative news developments, such data gives a reason to be optimistic.
However, the recent turbulence demonstrates the need for users to protect their downside risk. Over $8.5 billion was liquidated from the derivatives market as Bitcoin dropped to ~$31k on the 19th of May.
Insurance solutions like Insured Finance are one option that enables cryptocurrency speculators to hedge their risk. Insured Finance users can secure coverage against events like exchange hacks, stablecoin failure, and rug pulls.
About Insured Finance
Insured Finance is a decentralized, peer-to-peer insurance marketplace. Built on the Polkadot blockchain, Insured Finance users can request customized insurance on a wide variety of digital assets. Those that fulfill requests earn premiums and can earn a competitive return on their capital. Claims are fully collateralized and settled instantly.