Bitcoin

Why is crypto crashing right now?

Published

4 months ago

August 5, 2024

What are the immediate global triggers that have led to this massive crypto market crash? Read on

The crypto market has crashed brutally, sending shockwaves through the financial world. As of August 5, the global crypto market cap stands at $1.81 trillion, a staggering 15.88% decrease in just one day, triggering extreme panic and strong indications of a bear market.

Bitcoin (BTC) has plummeted over 25% in the last seven days, with nearly 15% of that decline occurring in the last 24 hours, trading at $51,300 levels as of August 5.

Crypto black Monday: Why is crypto crashing right now? - 1 — BTC price chart | Source: TradingView

Ethereum (ETH) has fared even worse, falling by 32% in the last week and over 21% in the past day, trading at $2,238 levels as of this writing.

Crypto black Monday: Why is crypto crashing right now? - 2 — ETH price chart | Source: TradingView

Other altcoins have been hit hard, too, dropping between 40-50% over the week and 15-25% in the last 24 hours.

The turbulence isn’t limited to the crypto market. Major global stock indices like NASDAQ100 (U.S.), FTSE100 (UK), and NIFTY50 (India) have seen sharp declines of 2-3% in a single trading session.

Japan’s Nikkei225 took the worst hit, plunging nearly 14% in one day, marking its steepest decline since 1987.

So, why is crypto crashing right now? What are the global triggers causing this widespread panic and dragging down all financial markets? Let’s delve into the underlying reasons behind this market turmoil.

What happened to crypto market: decoding the factors

U.S recession fears

The crypto market’s recent crash isn’t happening in isolation. The U.S. job market is showing signs of trouble, which is fueling fears of a recession.

According to data released on August 2, the unemployment rate jumped to a nearly three-year high of 4.3 percent in July, up from 4.1 percent in June and a stark increase from a five-decade low of 3.4 percent in April last year.

Economists from Goldman Sachs have increased the probability of a recession in the U.S. next year to 25 percent from 15 percent, Bloomberg reported.

Despite this, they noted there are “several reasons not to fear a slump,” even with the jump in unemployment. According to Goldman economists, ‘The economy continues to look fine overall, there are no major financial imbalances and the Fed has a lot of room to cut interest rates and can do so quickly if needed.’

However, there are also concerns that the Federal Reserve may have “waited too long” to cut interest rates. The Goldman report suggests that if job growth recovers in August, a 25 basis points (bps) cut would be sufficient to address any downside risks. But if the August employment report is as weak as July’s, a 50 bps cut might be necessary in September.

The rising unemployment and potential recession fears are creating a ripple effect. Investors are becoming more risk-averse, moving away from volatile assets like crypto, leading to massive sell-offs in the crypto space.

When people fear a recession, they tend to sell off riskier investments and hold onto safer assets like cash, gold, or government bonds.

Nikkei 225 crash

Japan’s financial system is undergoing some critical changes, and these shifts are having a ripple effect on markets worldwide.

On July 31, Japan’s central bank raised its benchmark interest rate to “around 0.25%” from its previous range of 0% to 0.1%. This was the second time this year that the Bank of Japan (BoJ) increased rates, the first being on March 19, marking the first rate hike since 2007.

While this move is aimed at benefiting Japan’s economy, it has an adverse impact on carry trade, a popular strategy among forex traders and fund managers.

Carry trade involves borrowing money in a currency with a low-interest rate and investing it in assets that offer higher returns. When Japan raises its interest rates, it makes the yen more attractive for borrowing, disrupting this strategy and causing global financial adjustments.

The effect of Japan’s rate hike was immediately felt. The Nikkei 225 stock index plunged 12.4% on August 5, marking a widespread sell-off.

One of the factors driving the BoJ to raise rates was the prolonged weakness in the Japanese yen, which has pushed inflation above the central bank’s 2% target.

Early on August 5, the dollar was trading at 142.59 yen, down from 146.45 late Friday and sharply below its level of over 160 yen a few weeks ago.

The market sell-off in Japan is not occurring in isolation. Stocks began tumbling globally on August 2 after weaker-than-expected data on U.S. jobs sparked worries that high interest rates might push the U.S. economy into a recession.

This anxiety is compounded by Japan’s rate hike, which adds another layer of complexity to the global financial picture.

The current scenario, where both U.S. and Japanese markets are showing signs of stress, is causing investors to reassess their positions. As a result, there is a massive sell-off in riskier assets, including cryptocurrencies.

Geopolitical woes

Geopolitical tensions are another major factor impacting the crypto market. On August 3, tensions in the Middle East escalated as Iran and its allies prepared their response to the assassination of Hamas leader Ismail Haniyeh in Tehran, an act they blamed on Israel.

This followed the killing of Hezbollah’s military chief in Beirut, prompting vows of vengeance from Iran and the ‘axis of resistance’, which raised fears of a regional war.

Meanwhile, the U.S., an ally of Israel, announced it would move warships and fighter jets to the region. Western governments urged their citizens to leave Lebanon, where the powerful Iran-backed Hezbollah movement is based, and airlines canceled flights.

Iran-backed groups from Lebanon, Yemen, Iraq, and Syria have already been drawn into the ongoing conflict between Israel and the Palestinian militant group Hamas in Gaza.

The fear of a regional war and its potential global implications can lead to massive sell-offs in the crypto market as investors seek stability. Geopolitical instability often causes heightened volatility in both traditional and crypto markets.

What’s next?

As the crypto market continues to tumble, let’s explore the insights of some prominent figures in the industry and analyze their perspectives on the situation.

Alex Krüger, a well-known macroeconomist, suggests that the current debacle is driven more by macroeconomic factors rather than issues specific to crypto.

Krüger argues that the policy mistake wasn’t the Fed not cutting rates quickly enough, but rather the Fed not cutting rates while Japan hiked theirs, creating a financial crisis spurred by levered Japanese speculators, which, according to him, is a less severe scenario than a crisis caused by a U.S. recession.

This debacle is obviously macro driven, rather than crypto specific. And it is becoming apparent the main driver is not the US economy collapsing (recession talks spiked post payrolls last Friday).
It seems the policy mistake was not the Fed not cutting fast enough, but rather… pic.twitter.com/PjTU7v2ZUY
— Alex Krüger (@krugermacro) August 5, 2024

Meanwhile, Justin Sun, the founder of Tron (TRX), remains optimistic despite the market downturn. He suggests that the industry has grown over the past year and that the current market fluctuations aren’t due to negative news.

Don’t worry! The industry has grown significantly over the past year, and this market fluctuation isn’t due to negative news. We should reject FUD and keep building. That’s why we’re creating a $1 billion fund to combat FUD, invest more, and provide liquidity. 🙏
— H.E. Justin Sun 孙宇晨 (@justinsuntron) August 5, 2024

In these turbulent times, you should exercise caution and stay informed. Diversify your portfolio to mitigate risks and avoid putting all your eggs in one basket.

Consider setting stop-loss orders to protect your investments from further decline. Don’t make impulsive decisions based on fear or market hype, and never invest more than you can afford to lose.

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Bitcoin

Options on Bitcoin (BTC) Exchange-Traded Funds Marks Milestone, Despite Position Limits

Published

5 hours ago

November 20, 2024

admin

Park explained on X that the exercisable risk, representing the total value of option contracts exercised or converted to actual shares, equates to less than 0.5% of IBIT’s outstanding shares. Meanwhile, the industry standard is closer to 7%, which would represent a comparative figure of 7%. To show how small the 0.5% figure is, bitcoin CME futures contracts are allowed to trade 2,000 contracts, which is the equivalent of 175,000 for IBIT.

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Bitcoin

The Case For A Future Valuation Of $1 Million

Published

9 hours ago

November 20, 2024

admin

Este artículo también está disponible en español.

Since November 5, the day President-elect Donald Trump secured another term in office, Bitcoin has experienced a remarkable uptrend, reaching a new all-time high of $93,300.

Since then, BTC has been trading within a narrow range between $89,000 and $92,000, positioning for a potential move toward the $100,000 milestone. This raises an intriguing question whether a price of $1 million per coin is feasible over the next decade.

A Long-Term Vision For Investors

Market expert VirtualBacon has conducted an in-depth analysis of these possibilities, delving into the numbers, trends, and catalysts that could propel Bitcoin to experience a surge of nearly 1,000% from its current price levels.

Within the current market cycle, the expert forecasts that Bitcoin could hit $200,000 in the next one to two years. However, he notes that while this milestone is significant, altcoins may offer higher returns at a greater risk, often crashing by 80% to 90% in bear markets.

In contrast to altcoins, which face increasing regulatory scrutiny, Bitcoin stands out as a safer long-term investment. VirtualBacon argues that Bitcoin’s potential is not just confined to the next few years but spans a decade or more.

To understand why Bitcoin’s price could reach $1 million, VirtualBacon asserts that investors need to consider its fundamental utility as a store of value. Bitcoin’s fixed supply of 21 million coins, its global accessibility, and its resistance to censorship and manipulation make it a compelling alternative to traditional financial assets.

The expert suggests that if Bitcoin is to become recognized as the digital gold of the 21st century, reaching a market capitalization that rivals gold’s estimated $13 trillion is not merely a theoretical possibility but “a logical outcome.”

Key drivers for this potential growth include increasing participation from asset managers, corporate treasuries, central banks, and wealthy individuals. Recent data indicates that Bitcoin ETFs have seen record inflows, with $1 billion invested last week, reflecting growing institutional confidence.

Additionally, discussions among corporations, such as Microsoft considering Bitcoin reserves, further enhance its strategic value. Wealthy individuals are also beginning to adopt Bitcoin as a standard portfolio allocation, with even a modest 1% investment becoming commonplace among billionaires.

What Does Bitcoin Need To Reach $1 Million?

For Bitcoin to reach the $1 million mark, two critical factors must be analyzed: global wealth growth and portfolio allocation. VirtualBacon notes that in 2022, total global wealth was estimated at $454 trillion, and projections suggest this could grow to $750 trillion by 2034.

Currently, gold holds approximately 3.9% of global wealth, while Bitcoin is at a mere 0.35%. If Bitcoin’s allocation in global portfolios rose to just 3%, still significantly below gold’s share, its market cap could soar to $20 trillion, pushing the price to $1 million per coin.

Historically, gold’s market cap saw significant growth following the launch of exchange-traded funds in 2004, with its portfolio allocation increasing from 1.67% to 4.74% over the next decade.

If Bitcoin follows a similar trajectory, its allocation could rise from 0.35% to 1.05% or more, translating to a market cap of approximately $7.92 trillion, equating to about $395,000 per Bitcoin. Therefore, reaching $1 million doesn’t require Bitcoin to surpass gold; it must capture about 57% of gold’s projected market cap by 2034.

With gold representing 4.7% of global portfolios compared to Bitcoin’s 0.35%, a modest increase in Bitcoin’s share of global wealth to 3%—just 60% of gold’s allocation—could “easily” result in a $20 trillion market cap and a $1 million price point.

At the time of writing, BTC is trading at $92,240, up 7% every week.

Featured image from DALL-E, chart from TradingView.com

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Altcoins

Analyst Says Dogecoin Has Way More Room To Grow, Sees Potential Rally to New All-Time High for DOGE

Published

14 hours ago

November 20, 2024

admin

A closely followed crypto strategist believes that top memecoin Dogecoin (DOGE) may be gearing up for an explosive surge.

Analyst Ali Martinez tells his 80,000 followers on the social media platform X that DOGE has more upside potential based on the level of public interest relative to its current price level.

He uses Google search trends to gauge the level of interest for the top memecoin by market cap.

“I read people saying Dogecoin will not go higher because of ‘market cap,’ ‘sell the news,’ ‘better memes.’ Well, when you look at the interest in DOGE over time, it isn’t even at peak popularity yet. Long story short, DOGE has way more room to grow.”

He also says that DOGE may be forming a bull flag pattern on the hourly timeframe and may soon surge past its all-time high of about $0.74. In technical analysis, a bull flag is viewed as a continuation pattern, indicating that an asset is consolidating and gearing up for a fresh rally.

“Dogecoin appears to form a bull flag! I’m looking out for an hourly close above $0.40 which could trigger a breakout to $0.85!”

DOGE is trading for $0.3742 at time of writing, up 3.6% in the last 24 hours but down about 49% from its all-time high of $0.731.

Lastly, the analyst says that Bitcoin (BTC) may override a bearish signal from the TD Sequential indicator and hit six figures.

Traders use the TD Sequential indicator to predict potential trend reversals for tokens based on the closing prices of their previous nine or 13 bars or candles.

“Finally, I believe a sustained daily close above $91,900 will invalidate this bearish Bitcoin outlook and trigger a breakout to $100,680!”

Bitcoin is trading for $90,885 at time of writing, up 1.6% in the last 24 hours.

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