Crypto Crash: When Musk, the Environment, Tax Day and China Collide

A fatal cocktail of factors, one part Elon and ESG mandates, another part China, and a dash of questions about Tether, led to the selloff.

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key takeaways

  • There’s not one person or entity responsible for the crash, according to Galaxy’s Sebastian Corrochano
  • “Volatility isn’t your enemy, it isn’t your friend. It’s just something to be conscious of,” said Corrochano

Wednesday’s crash of the broader digital asset market liquidated nearly $8 billion in positions and pushed the price of bitcoin down to almost $35,000.

There’s not one person or entity responsible for the crash, according to Galaxy’s Sebastian Corrochano, but rather it was a multitude of issues that were kicked off by Elon Musk’s ESG-themed rejection of bitcoin

“If the Darwinian concept of which narrative is most important, Elon Musk’s tweeting which started from last week seems to be the primary culprit,” Corrochano said. “The number of firms that have ESG mandates is nearly 50% of institutional investors and that number has doubled in about 10 years.”

Although Musk’s concerns about bitcoin and its carbon footprint are false, the fact that it’s being brought up at all has sufficient salience to make people rethink their position, Corrochano explained. 

“The increased difficulty of attracting that next institutional dollar given heightened ESG sensitivity obviously has a certain impact,” he said. 

Of course that story alone wouldn’t be that big — bitcoin has been fighting this issue for quite some time — but it conceded with concerns over the future of digital assets in China (to be sure, bitcoin has long been banned in China) as well as fresh questions about Tether’s backing from many, including Caitlin Long, Founder and CEO of Avanti Financial Group (see below).

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Corrochano pointed to some negative news about an audit conducted on Tether’s backing, which Long highlighted in her tweet, that may have gone “under the radar” at first but was picked up by the market on Wednesday pushing Tether down to nearly 87 cents from its peg of $1. 

“Part of the market is thinking, ‘Man, we need a more transparent stablecoin’, but that’s always been the case. People sometimes need to be reminded,” he said. “At least we are getting regular audits, the regular audits aren’t perfect, so it’s almost like transparency was worse to some degree.”

The tax day impact

There’s also tax day. Given the bull market of last year, many people had capital gains they owed money on and likely had to liquidate some assets to free up capital to pay the IRS.

But is anything here new? Bitcoin’s energy consumption isn’t a secret, China banned bitcoin years ago, Tax day doesn’t change and Tether has been under scrutiny for years. 

“This was going to come up anyways. So the fact is we pulled forward a discussion that may have taken another year or two to percolate or reach the consciousness of novel investors,” he said. “Some of the critiques were going to come anyway so bring it on. We were going to have to get into the weeds about this anyway. Let’s just address it.”

This isn’t the first time bitcoin had a violent crash and likely won’t be the last either. Corrochano’s count is that the asset class is at around four moves to the downside in the 20% range this year alone. 

“It’s part of a volatile and novel asset class. The reality is a demonstration to some people that we are still in the early days,” he said.

“Volatility isn’t your enemy, it isn’t your friend. It’s just something to be conscious of.”

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