Elon, China & the 50% Wipeout of 2021

Elon tweeted. China banned mining. Bitcoin lost half its value.

Elon tweets, China bans

The 2021 crash was death by a thousand cuts, and the biggest cut came from the world's richest troll.

Bitcoin had been on a tear. From $30,000 in January to $64,000 in April. Tesla had bought $1.5 billion in BTC. Coinbase went public. NFTs were selling for millions. Everything was going right.

Then Elon Musk changed his mind. On May 12, Tesla announced it would no longer accept Bitcoin for car purchases, citing environmental concerns about proof-of-work mining. The same Elon who had pumped Bitcoin relentlessly for months, who had added "Bitcoin" to his Twitter bio, pulled the rug on the narrative.

The price dropped 10% in hours. But that was just the start. A week later, China announced a comprehensive ban on cryptocurrency mining. This wasn't the usual "China bans crypto" headline. They actually enforced it. Mining farms across Inner Mongolia, Sichuan, and Xinjiang were shut down. Half the global hash rate disappeared overnight.

Bitcoin fell from $64,000 to $30,000 by late June. A 53% crash in under two months. The leverage wipeout was massive: $8.6 billion in liquidations across all exchanges, one of the largest cascading liquidations in history.

The recovery took five months. By November 2021, BTC was at a new all-time high of $69,000. The mining industry had relocated from China to the United States, Kazakhstan, and other countries. The hash rate fully recovered. And Elon went back to posting memes about Dogecoin.

The irony of the 2021 crash is that China's mining ban, which felt catastrophic at the time, turned out to be one of the best things that ever happened to Bitcoin. It decentralized mining away from a single authoritarian country and moved it to jurisdictions with more legal protections.