China's Blackout Destroyed $300b in Less Than 24 Hours, Resulting in Massive Bitcoin Liquidations

SUMMARY

Following a price surge that heralded Coinbase's long-awaited market debut earlier in the week, the cryptocurrency market plummeted early Sunday as a result of blackouts in China, which resulted in massive drops in bitcoin mining rates, sinking prices and spurring billions of dollars in liquidations.

IMPORTANT INFORMATION

According to the crypto-data website CoinMarketCap, an overnight crash that began late Saturday reduced the total market capitalisation of cryptocurrencies around the world by about $310 billion in less than 24 hours, reducing the market from more than $2.2 trillion to less than $1.9 trillion at around 8 a.m. Eastern.

The market has risen back to around $1.95 trillion as of 9:45 a.m. Eastern, but the price of bitcoin, which is currently hovering around $54,750, is still down about 10.5 percent in the last 24 hours.

According to Bybt data, cryptocurrency liquidations totalled more than $10 billion during the flash crash, reaching their highest levels this year as the price of bitcoin fell more than $10,000 below its latest high of nearly $65,000 on Wednesday.

Analysts blamed the sudden losses on a nearly 50% drop in bitcoin's hash rate, which measures the total processing power used to mine the cryptocurrency and process its transactions, caused by blackouts in China's Xinjiang region, which is home to one of the world's largest bitcoin mining networks.

The blackouts, which were caused by a coal mine explosion in Xinjiang on April 10, took days to deplete bitcoin's hash rate, which fell from an all-time high of more than 215 exahash per second on Wednesday to around 120 exahash per second early Sunday.

Bitcoin's price has dropped about 12% since the hash rate began to fall, but it is still up a whopping 750% this year.

IMPORTANT QUOTE

"Price and hash rate have always been correlated," cryptocurrency researcher and former Forbes contributor Willy Woo said in a series of early Sunday tweets, referring to a similar flash crash in November 2017 and noting that once the hash rate began to normalise in both cases, the price of bitcoin began to recover.

IMPORTANT BACKGROUND

Though increased institutional adoption and inflationary concerns have propelled the cryptocurrency market to new highs in the last year, bitcoin's unyielding volatility has fueled Wall Street concerns that the token is an untrustworthy store of wealth. This attitude, however, may be changing.

According to Dallas Federal Reserve President Robert Kaplan, despite bitcoin's volatility, the token has proven itself as a store of value. "The challenge with bitcoin is determining how widely it will be adopted right now, it's clear it's a store of value," Kaplan said. "It obviously moves a lot in value, so that may keep it from spreading too far as a medium of exchange and widespread adoption, but that can and will change."