Crypto News
| Published On May 20, 2021 8:41 am CEST  |  Updated on Sep 8, 2023 7:28 am CEST | By Peter Siu

Tesla has “diamond hands” as a ‘short squeeze’ contributed to Wednesday’s crash

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While the crypto markets took a hard hit on Wednesday with Bitcoin and other currencies losing over 30%, the public is looking for answers. So what caused this hurt and made $500 billion disappear into thin air so suddenly?

It is hard to consider one determining factor as there seem to have been multiple overlapping events leading to the recent ‘correction’. That being said, some events stood out.

Elon Musk

Tesla’s Technoking Elon Musk may have single-handedly started the consternation with his tweets and media appearances. Musk’s tweets in the past weekend though seem to have ultimately triggered the first wave of sell-offs. Tweets included concerns about Bitcoin’s carbon footprint as well as hinting at Tesla letting go of its Bitcoin holdings.

In his typical style, amidst Wednesday’s blood bath, Musk tweeted that Tesla has “diamond hands” which seems to have had a calming effect on the market.

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‘Leveraged’ long positions liquidated in a short squeeze

A more technical look on the market collapsing is considered when we zoom in on traders’ leveraged positions being liquidated. While they possibly did not cause the initial sell-off, they sure helped to accelerate it. As exchanges triggered more than $8 billion in liquidations, this resulted in a flood of sell offs into a market that is already in panic, which in turn triggered further sell offs in a snowball effect.

The liquidations are likely the consequence of a play by large and powerful investors or whales. Explaining the short squeeze in detail is on-chain analyst Dylan LeClair:

China banning crypto

A dramatic headline published on Tuesday by Reuters suggested that China had banned cryptocurrency. While the actual news was much less dramatic and this kind of news keeps on being ‘replayed’, the nuance quickly got lost on social media where people implied a huge bomb was dropped over crypto territory.

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Other

While the above are some of the more popular explanations, there are other. For example, May 17 marked the final day for U.S. citizens to file their taxes. While many crypto holders in the country have made a good profit in the year, they may have sold some of their holdings in order to pay their due taxes.

Other macro-economic factors, such as inflation warnings and continuation of loose fiscal and monetary policy by (U.S.) governments, may have played a role too.

In conclusion, it was fear that got the upper hand on Wednesday. It shows that Bitcoin and crypto still has a long way to go before it reaches maturity and will show less volatility.

Bitcoin is currently trading just below $40,000, a good time to be buying “the dip”.

Peter Siu

Peter is a former poker-pro, turned crypto enthusiast with 8+ years’ experience in operational roles dealing with all online gaming verticals within large iGaming companies, including Flutter and Entain. Now an expert in the field of Sports Betting, Casino, iGaming, and Poker, he is our team leader and editor. When not working, Peter can be found in the gym or playing sports like football, tennis and more recently padel.