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$1 trillion wiped out! Inside the most brutal week in crypto this year

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  • It’s been crypto’s most brutal week, with $1 trillion wiped out as the overall market capitalization hits the lowest it’s been since March 1.
  • Many cryptos including Ethereum, Cardano, Binance Coin, XRP and Polkadot have seen about 50 percent drops this week.

It’s been a brutal week. After months of price spikes, new all-time highs and general euphoria, the crypto market bull run of 2021 has come to a halt. Every coin in the top 100 has bled this week, some more than others. The average price drop this week stands at 50 percent across the board, from the large caps like Ethereum which lost 45 percent to smaller caps like Fantom which shed 65 percent. So, what really happened and will the new week bring new tidings or is this the onset of a crypto winter?

How bad is it?

Bitcoin is trading at $35,000 at press time, down by 6.7 percent after a slight recovery yesterday. The top crypto has seen a very volatile week in which bad news has battered it day after day. It has shown resilience to bounce back, but every time it does, something new seems to come along and keep it down. BTC is down 29.7 percent for the week.

While it has traditionally received a huge boost from Elon Musk’s tweets, this time it wasn’t enough to reverse the tide.

For the week, Ethereum is down 45.8 percent as it looks set to dip below $2,000 for the first time since early April. ETH has lost 13.3 percent in the past 24 hours alone.

Other altcoins haven’t performed any better. Terra (LUNA), OKB and Fantom (FTM) have seen the worst drop in the top 100 coins, all shedding 65 percent each. Other big losers include PancakeSwap (CAKE), THORChain (RUNE), Qtum, Polkadot (DOT), IOTA and EOS which have all lost over 57 percent.

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The market cap has consequently taken a nosedive. It now stands at $1.39 trillion, down from just five days ago when it was at $2.36 trillion. This is one of the biggest wipeouts in dollar value in a week in crypto’s history.

What really happened?

Analysts and market experts have been struggling to explain the latest wipeout. However, what’s clear is that it all started with Elon Musk. Since announcing that Tesla would no longer accept Bitcoin for payments, the market has been in the red. Along the way, it has bounced back, but it has yet to hit the same heights it did before the Tesla blow.

Since then, there has been other bad news for the industry. One of the most impactful is the fresh crackdown in China. The Asian country has been going after the industry, reiterating its stand against banks processing crypto transactions. It’s also aiming at stamping out or at least reducing the crypto miners. With China being home to over 70 percent of BTC’s hash rate, this is obviously going to have a very big impact.

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There are those, like CoinShares’ Meltem Demirors, who believe this is just an expected market dip. The crypto veteran sees it as being the result of over-leveraging and panic selling by the newbies. However, even if this is the reason, an extended sell-off, even by the newbies could trigger wider market panic and spark a months-long market dip.

The new week will be key in determining what the rest of the year will be like for crypto. If Bitcoin and the other large caps are able to regain some of the lost value, it could calm retail investors and end the panic selling. However, if by mid-week the market is still bleeding, we could be in for a brutal rest of the year.

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Morgan Stanley CEO: Crypto Won’t Go Away

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Morgan Stanley’s boss is bullish on cryptocurrency but says that demand is scanty so far

Morgan Stanley CEO James Gorman sounded upbeat about cryptocurrencies during the bank’s third-quarter earnings call, claiming that the industry will not go away:

I don’t think crypto’s a fad. I don’t think it’s going to go away.

Morgan Stanley was the first major U.S. bank to grant its wealthy clients access to Bitcoin funds in March.

So far, Gorman does not see a lot of client demand for Bitcoin, but he does not rule out that crypto may start playing a bigger role in its business:

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For us, honestly, it’s just not a huge part of the business demand for our clients. That may evolve and will evolve with it, but certainly it’s not what’s driving our economics one way or the other.

Shares of Morgan Stanley (MS) are up 44% since the start of 2021.

The bank’s investment revenue crushed analysts’ estimations in the third quarter of 2021, reaching $2.85 billion.

Not siding with Dimon

Gorman’s views on Bitcoin diverge from those of JPMorgan CEO Jamie Dimon. While the Morgan Stanley head refrained from making specific price predictions, he opined that the largest cryptocurrency would be here to stay:

I don’t know what the value of Bitcoin should or shouldn’t be. These things aren’t going away.

As reported by U.Today, Dimon caused quite a stir by claiming that Bitcoin is worthless.

While the Bitcoin price is already immune to Dimon’s oft-repeated critiques, his caustic comment certainly did not go unnoticed by the crypto community and market observers.

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A divisive comment

There are some powerful Wall Streeters who share Dimon’s sentiment. Larry Fink, CEO of asset management juggernaut BlackRock, recently said that he was more in the Dimon camp.

Gorman is not the only banker who disagrees with Dimon on Bitcoin. Bill Winters, CEO of Standard Chartered, recently opined that cryptocurrency assets could serve as a hedge against inflation:

There’s a role for non-fiat currencies, especially when parts of the market are concerned about inflation—and there’s good reasons to be concerned about inflation.

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China Crypto Ban: World’s largest Bitcoin mining pool to block IP access from mainland China

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The latest update in the Chinese crypto ban saw the world’s largest Bitcoin mining pool, Ant Pool give in to the regulatory crackdown and announced blocking IP access in mainland China, effective from 15th October. Additionally, amid a global crypto takedown, Ant Pool has also revealed the upcoming launch of its exclusive KYC verification system to further comply with crypto regulations of various countries.

Since the reveal about the Chinese government’s tracking of IP addresses to filter out illicit crypto mining activities in the country, there have been several shutdowns of unregistered mining farms along with registered giants taking steps to comply with the authorities. Earlier this week, the largest Bitcoin mining equipment manufacturer in China, Bitmain announced that it will stop shipping any more Antimers to the country from October 11, in lieu of the ongoing crypto crackdown, that is specially focused on Bitcoin mining.

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“Actively responding to the local government policies of the company’s entities has been Bitmain’s business strategy all along…Strictly abide by the laws and regulations of the locations of the company’s entities is the operating principle that Bitmain has always adhered to. From October 11, 2021, Antminer will stop shipping to mainland China (excluding Hong Kong and Taiwan). For customers in mainland China who have purchased long-term products, our staff will contact them to provide alternative solutions.”, stated the Press Release.

China Crypto Ban nears end as government succeeds shutdown of crypto businesses

However, the Chinese government has no plans to stop unless the crypto industry has completely vanished from the face of China. According to CoinGape’s recent coverage, China’s authoritarian government is now planning to add crypto mining to the “Negative List” of industries. This would mean that the crypto mining industry will be banned or restricted from any investment from both, mainland China investors as well as foreign investors.

The Chinese crypto ban appears to be near the end as more than 20 crypto firms and exchanges announced the suspension of crypto services in the country. Furthermore, foreign crypto exchange giants including Huobi, OKEx, and Binance have also announced the closure of all services by December.

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IMF Says Banking Sector Under Pressure From Crypto Adoption, Warns Against Meme Tokens: Report

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The International Monetary Fund (IMF) thinks crypto has the potential to put pressure on the banking sector.

In a new report, the IMF says technological innovation is changing financial services. The report notes that the banking sector could lose market share if the crypto ecosystem grows to become a mainstream alternative to bank deposits or current lending options.

The IMF explains,

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“Stronger competition for bank deposits through stablecoins held on crypto exchanges or private wallets may push local banks toward less stable and more expensive funding sources to maintain similar levels of loan growth.

Beyond the direct loss in net interest income, a loss of customer relationships and data on transactions would also undermine credit risk assessment for clients and their ability to offer targeted products to clients.”

The IMF also warns that the crypto ecosystem comes with “consumer fraud and market integrity risks,” specifically cautioning against “meme tokens” such as Shiba Inu (SHIB).

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“Most crypto assets are highly volatile, speculative assets. One notable recent example was the increased investor interest in ‘meme tokens’… Some of these tokens were created for speculation purposes, and their price was highly influenced by social media trends.

Relatedly, investors are also likely to face losses from tokens ceasing to exist – something that is less common in regulated securities markets. For example, more than 16,000 tokens have been listed on various exchanges over time, but [only] around 9,000 exist today.”

The IMF isn’t the only institution issuing warnings about crypto’s potential impact on legacy finance. Last week, researchers at the Federal Reserve said digital assets could pose a threat to the supremacy of the US dollar.

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