As a seasoned analyst with over two decades of experience in global markets, I have witnessed numerous market crashes and recoveries, from the dot-com bubble to the Great Recession. Today’s ‘Black Monday’ has left me with a sense of deja vu, as I see striking similarities between the current situation and past financial turmoil.
On ‘Black Monday’, traders worldwide felt the crushing impact as both traditional stock markets and cryptocurrency markets plummeted dramatically, causing panic signals to sound around the world.
As a long-time investor in the cryptocurrency market, I have seen my fair share of rollercoaster rides. This morning, watching Bitcoin plunge below $50,000 was like deja vu – a stark reminder of the volatility that comes with investing in this space. With a 15% dip, it’s hard not to feel a sense of unease, especially when you consider that just days ago, we were celebrating its record-breaking highs.
In just a single day, the combined worth of all cryptocurrencies plummeted by approximately 12.9%, amounting to a staggering loss of around $292 billion, bringing the current total down to roughly $1.96 trillion. It’s been since February that the market value dropped below the $2 trillion mark.
In the last 24 hours, approximately 217,000 cryptocurrency traders who employed leverage experienced liquidations totaling around $841.3 million, as reported by CoinGlass. Ethereum accounted for about $310 million in margin calls, while Bitcoin came in second with roughly $255 million.
As a technical analyst, I anticipate that the $50K-$52K range will serve as a crucial support zone for Bitcoin, potentially triggering a strong rebound. However, it’s essential to acknowledge that the opening of the U.S. markets could bring unforeseen challenges and potential risks, which some investors might not fully comprehend at present.
Here are the five possible reasons behind the crypto market crash:
1. Low Liquidity
Despite the impressive performance of Bitcoin over the past decade, the coin is still struggling to maintain liquidity.
Today, Bitcoin suffered a substantial dip, struggling to preserve its market fluidity that resulted in a steep price plunge. The digital currency plummeted approximately 13%, going from $64,000 down to $52,000. This sudden turnaround caused over $700 million worth of crypto positions to be liquidated.
The main issue behind this liquidity struggle is a mixture of different factors. Firstly, there’s been a substantial amount of Bitcoins being withdrawn from exchanges, particularly in the U.S. due to the surging unemployment rate, contributing to a supply shortage.
Furthermore, the dispersal of Bitcoins as part of the Mt. Gox recovery process and the German authorities’ auctioning off confiscated Bitcoins are contributing to the increased demand in the Bitcoin market.
Additionally, an increase in liquidity issues has arisen due to the escalating investments into Bitcoin exchange-traded funds (ETFs). These ongoing investments are projected to persist. This situation leads to a “sell-side liquidity crisis,” where institutional investments surge without a proportional rise in Bitcoin’s liquidity immediately.
2. Iran-Israel Conflict: Fear of Iran’s Retaliation
The escalating conflict in the Middle East following the assassination of Hamas leader, Ismail Haniyeh, in Tehran by Israel might cause significant harm to various worldwide markets, such as Cryptocurrencies.
1. The assassination of Haniyeh in Tehran has noticeably escalated the tension between Israel and Iran, creating a broader unrest in international politics that might also involve the U.S. Haniyeh was reportedly killed by an Israeli air attack during his visit to Iran for the inauguration of the new Iranian president. This incident has provoked threats of revenge from Hamas and Iran.
As a regional analyst, I’ve noticed a heightened sense of resolve among Hamas and Iranian officials, who have publicly pledged retribution for the passing of their leader, Mr. Haniyeh. This vow has sparked apprehensions about potential intensification in our region.
The escalating tension and risk of disputes have not only affected traditional stock markets but also the digital currency market, such as Bitcoin and other significant cryptocurrencies. There has been a considerable decrease in their values. Experts in trading and analysis believe that investors are hesitant to invest in unpredictable assets like cryptocurrencies due to the instability and uncertainty stemming from the conflict.
3. Historical Crash In Japan’s Nikkei and Panic Sell-off In Global Market
1. The rapid decline in world stock markets, notably a steep fall in the Nikkei 225 index of Japan, has significantly impacted the cryptocurrency market, causing a decrease in Bitcoin’s value.
On August 5, 2024, the Nikkei 225 index experienced one of its second-most significant single-day decreases since the 1987 ‘Black Monday’ incident, falling approximately 12% on that day.
The dramatic drop was driven primarily by apprehensions about an economic downturn, triggered by dismal manufacturing sector reports and a swift increase in the value of the yen relative to the dollar. This volatility in the stock exchange negatively impacted tech-focused indices such as the Nasdaq, resulting in significant losses.
The turbulence in the world’s financial markets has also affected the cryptocurrency market because it shares similarities with major stock indices. In this way, Bitcoin has mimicked the unpredictability of traditional financial systems. Some of the drop in Bitcoin’s value can be attributed to investors becoming risk-averse during times of economic instability and market volatility.
4. Regulatory Uncertainty Breaks Wider Participation
On August 5, 2024, the fall of Bitcoin was additionally linked to uncertainties and slow policy decisions regarding the crypto market, as regulators struggled with making clear-cut decisions about it.
Over the past period, the United States Securities and Exchange Commission (SEC) has taken a more assertive stance in its regulatory strategies. Under the leadership of Chair Gary Gensler, the SEC’s enforcement measures have focused on numerous digital currency trading platforms, fostering an atmosphere of apprehension and doubt.
Inconsistent and unclear regulations regarding cryptocurrencies have created uncertainty among market participants about the legal environment they might face in the future. This regulatory uncertainty discourages investments and increases volatility because investors can’t accurately forecast which digital assets may be subject to regulatory action next.
5. Massive Sell-offs
On August 5, 2024, it’s widely thought that a substantial decrease in Bitcoin’s value was mainly caused by two significant sellers: the collapsed cryptocurrency exchange Mt. Gox and the German government.
After collapsing in 2014, the Mt. Gox exchange started distributing its leftover Bitcoin holdings, valued at approximately $9 billion, among its creditors. This distribution significantly increased the amount of Bitcoin available for sale, leading to a significant surge in selling pressure within the market.
As an analyst, I find myself observing an intriguing development: The German government, holding a substantial Bitcoin stash, decided to offload a significant portion, approximately 16,000 BTC, onto exchanges. This action aligns with their strategic approach of liquidation, which in turn has augmented the market’s supply and seemingly intensified the downward pressure on the price.
Large-scale Bitcoin sales caused a significant boost in the circulating supply, which in turn triggered a steep decrease in Bitcoin’s value. The market reacted by intensifying selling activity as investors braced for additional price drops. Consequently, the price of Bitcoin plummeted dramatically, illustrating the market’s response to the sudden influx of Bitcoin from major entities.
Conclusion
With Bitcoin and other significant cryptocurrencies experiencing a steep drop, financial experts anticipate they could fall even more when U.S. markets reopen on Monday. Recovering from this crypto crash might take several weeks or months, but considering the current global instability, such a recovery seems uncertain at best.
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2024-08-05 12:22