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Bitcoin crashed 30% to $30,000 levels Wednesday wiping out an estimated $500 billion dollars of investor wealth the world over. It led to panic with investors reportedly rushing to exchanges to sell their holdings or even buy at the cheaper price, eventually leading to a crash in crypto exchanges across the world, including India.

However, after a sharp decline yesterday, the virtual currency recouped most of the losses on Thursday morning and traded nearly 3% lower. Perhaps, this volatility can be attributed to its decentralized network.

“The heavy price dip in the market has encouraged more people to buy into the dip thereby causing a tremendous surge in our traffic. We’re seeing approximately 400% more traffic than what we witnessed in previous month. The severity of today’s market crash has also caused some of the top international crypto exchanges to face an outage,” said Nischal Shetty, CEO, WazirX – India’s largest crypto exchange.

What led to Bitcoin’s crash?
Tesla boss Elon Musk sent shockwaves in the cryptocurrency world making a U-turn on May 13th stating the car maker would no longer accept Bitcoin as payment for Tesla cars. It initiated a downward spiral in Bitcoin prices compelling many investors to take short positions across the world. Then came People’s Bank of China stating that cryptocurrencies would not be considered legal tender for payment transactions, leading to a further fall.

India’s regulatory ambiguity
This crash also comes at a time with the Indian government, according to reports, is contemplating setting up a new panel to look into cryptocurrency regulations. The RBI had earlier banned cryptocurrency before the Supreme Court in March 2020 quashed the central bank’s ban. Indian Banks, however, have disconnected from cryptocurrency exchanges for letting transactions go through, even though Finance Minister on more than one occasion has stated that a ‘calibrated approach’ would be taken in cryptocurrency regulations.

This, coupled with the report of the new panel formation, has kept cryptocurrency players optimistic. The fact that Ministry of Corporate Affairs also asked companies to mandatorily disclose their crypto holdings was seen as a step in the right direction.

“The Ministry of Corporate Affairs has recently made it mandatory for companies to report crypto-related transactions. We believe this directive is a step in the right direction and hope it will be followed by broader regulations around crypto. This is the first time the government has formally recognised crypto as an asset class,” Avinash Shekhar, Co-CEO of ZebPay told Money9 earlier.

Was the crash inevitable?
While many continued to be bullish on Bitcoin and other cryptocurrencies, some financial advisors saw this crash coming and got their clients to make safer bets.

“With China coming down hard on cryptocurrency trading and India almost making its mind to ban trading, it seems the end of the road for crypto in this part of the world. A third of humanity is rejecting it. Yes, blockchain technology will be embraced but no central bank worth its salt is about to allow a takeover of its monetary control. I think for trading, these are good instruments but not as a store of wealth,” said Alok Jain, a SEBI-registered investment advisor and founder of Weekend Investing.

Portfolio managers who earlier advised NRI clients to keep a part of their asset allocation towards cryptocurrencies were also quick to take safe positions.

“We were out of Bitcoin on Monday itself. We had 40% allocation left. We had booked 60% allocation around a month ago when Coinbase came with its IPO. We are in no hurry to get back to buying it or shifting it to other cryptos. We will be watching the regulatory space across the globe to give us clues,” said Amit Kumar Gupta, Portfolio manager at Adroit PMS.