Tomorrow is the anniversary of 519. As an experienced investor since 2021, the memories are still fresh. On that day, the black swan event left many people wiped out; the thrilling ups and downs and the feeling of exhilaration linger on. Currently, Bitcoin is severely controlled by Wall Street, making it difficult to see that kind of scene again... The 519 incident in the cryptocurrency circle refers to the unprecedented crash that occurred on May 19, 2021, in the cryptocurrency market, shattering the dreams of millions of investors of getting rich, and triggering extensive discussions on the regulation, risks, and future of cryptocurrencies.

Causes of the Event

The cause of the 519 incident in the cryptocurrency circle is multifaceted, with the most direct trigger being a series of tweets from Elon Musk, the founder of Tesla. Musk is a staunch supporter of cryptocurrencies; he once led Tesla to invest $1.5 billion in Bitcoin in the first quarter of 2021 and announced that it would accept Bitcoin as a payment method for car purchases. He also frequently promoted niche coins like Dogecoin on Twitter, igniting market enthusiasm and speculation.

However, Musk's attitude underwent a 180-degree turn in mid-May. On May 12, Musk suddenly announced that Tesla had stopped accepting Bitcoin payments due to concerns that Bitcoin mining and transactions were causing a rapid increase in the consumption of fossil fuels, especially coal, negatively impacting the environment. This news immediately triggered a significant drop in Bitcoin's price, falling from $57,000 to $46,000. On May 16, Musk hinted on Twitter that Tesla might sell its Bitcoin holdings, further undermining market confidence. On May 17, Musk clarified that Tesla had not sold any Bitcoin, but it was too late to reverse the market panic.

In addition to Musk's remarks, the causes of the 519 incident in the cryptocurrency circle also include the following aspects:

Regulatory Signals

On May 18, three major associations, including the China Internet Finance Association, the China Banking Association, and the China Payment and Clearing Association, jointly issued a notice requiring member institutions not to engage in virtual currency trading and related financial activities, and reminded them to guard against the risks associated with virtual currency trading. On the same day, the Inner Mongolia Development and Reform Commission established a reporting platform for virtual currency 'mining' enterprises to strengthen regulation of 'mining' activities. Although these documents were not new regulations, they were interpreted by the market as China's crackdown on cryptocurrencies, triggering panic and sell-off among some investors.

Market Bubble

In the first four months of 2021, the cryptocurrency market experienced a frenzy of a bull market, with Bitcoin rising from $30,000 at the beginning of the year to $64,000 in mid-April, an increase of over 100%. Other mainstream cryptocurrencies such as Ethereum, Litecoin, and Tron also achieved several times or even dozens of times in gains. Not to mention some emerging niche coins like Dogecoin, Shiba Inu, and SafeMoon, whose prices skyrocketed from a few cents to several dimes or even several dollars, with increases reaching thousands of times. The rise of these coins often lacks reasonable fundamentals and logic, relying solely on social media hype and speculation, creating a huge market bubble. Under the pressure of the bubble bursting, the market inevitably experiences significant corrections and adjustments.

Market Sentiment

The cryptocurrency market is a highly emotional market, where investors' greed and fear often amplify market volatility. In a bull market, investors tend to be overly optimistic, blindly following trends, and continuously increasing their positions, leading to market overheating and overvaluation. In a bear market, investors often panic excessively, blindly selling off, and continuously reducing their positions, resulting in market panic and excessive destruction. In the 519 incident of the cryptocurrency circle, market sentiment underwent a dramatic shift from greed to fear, from bullish to bearish, from buying to selling, creating a vicious cycle that exacerbated the market collapse.

Process of the Event

The process of the 519 incident in the cryptocurrency circle can be divided into the following stages:

Warning Phase

From May 12 to May 18, the cryptocurrency market faced a series of adverse factors, including Musk's Twitter remarks, regulatory signals from China, and the European Central Bank's financial stability report, which negatively impacted market confidence and expectations, leading to the continued decline of mainstream cryptocurrencies like Bitcoin. During this phase, there was no large-scale panic or sell-off in the market, but some warning signals had emerged, such as an increase in net inflow to exchanges, rising amounts and numbers of liquidations, and an increase in market volatility and fear index.

Triggering Phase

From the early morning of May 19 to the morning of May 19, the cryptocurrency market entered the triggering phase, with a rapid acceleration of the market decline, experiencing multiple plunges and rebounds. During this phase, market panic reached its peak, with investors frantically selling their cryptocurrencies, leading to an oversupply in the market and a sharp drop in prices. During this phase, Bitcoin's price fell from $43,000 on the evening of May 18 to $30,000 on the morning of May 19, a decline of 30%. Ethereum's price dropped from $3,300 on the evening of May 18 to $1,900 on the morning of May 19, a decline of 42%. Other cryptocurrencies also saw declines of over 30%, with some even exceeding 50%. In this phase, the market's liquidations and liquidity crisis reached an extreme, with many exchanges and wallets experiencing crashes, lags, and delays, making it impossible for many investors to close positions or buy at the bottom in time, leaving them helplessly watching their assets shrink. During this phase, the market's fear index (VIX) soared to its highest level since 2021, reaching 0.8, while the market's greed index (GFI) fell to its lowest level since March 2020, at only 10.

Recovery Phase

From the afternoon of May 19 to May 20, the cryptocurrency market entered the recovery phase, with the downward trend alleviating to some extent, showing signs of rebound and stabilization. During this phase, market panic eased, investor confidence was restored, and some institutions and individuals optimistic about cryptocurrencies began to buy at the bottom, providing some support for the market. During this phase, Bitcoin's price rebounded from $30,000 in the afternoon of May 19 to $40,000 in the morning of May 20, an increase of 33%. Ethereum's price rose from $1,900 in the afternoon of May 19 to $2,800 in the morning of May 20, an increase of 47%. Other cryptocurrencies also saw increases of over 20%, with some exceeding 100%. In this phase, the market's fear index (VIX) fell to 0.6, while the market's greed index (GFI) rose to 27.

Adjustment Phase

From May 20 to the present, the cryptocurrency market has entered the adjustment phase, with market volatility narrowing, showing some signs of oscillation and consolidation. During this phase, market sentiment is relatively calm, and investors' rationality has increased, leading to more reflection and judgment on the value and prospects of cryptocurrencies. During this phase, Bitcoin's price fluctuated between $35,000 and $40,000, Ethereum's price fluctuated between $2,300 and $3,000, and other cryptocurrencies also showed some range-bound oscillation. In this phase, the market's fear index (VIX) stabilized around 0.5, while the market's greed index (GFI) remained around 30.