Bitcoin and company once again reminded investors and speculators of their nature and possibility to make very sharp corrections in price, and at the least expected moment. The price of the most popular cryptocurrency fell by nearly 40 percent, to around $42,000.
The current cryptocurrency crash seems to be the biggest since May, and only a few cryptocurrency projects managed to withstand it and end the weekend without huge drops.
There was already a bigger discount
Recall that in May, bitcoin and other cryptocurrencies started to drop sharply when Tesla quit accepting payments in BTC and China started dismantling the entire crypto ecosystem in its country. As a result, bitcoin was able to fall from as low as $64,000 to as low as $29,000 between April and June, creating a massive correction of more than 50 percent. The capitalization of the entire crypto market then dropped from $2.5 trillion to $1.3 trillion.
How does it look today? The BTC/USD exchange rate rose after the May decline and set a historical peak near $69,000, only to fall to around $42,000 this weekend. The correction therefore amounted to less than 40%, while the capitalization of the entire market retreated from USD 2.9 trillion to USD 2.2 trillion. Despite such a sharp retreat, the market is therefore slightly below its April/May 2020 size.
It is also worth noting that ethereum is starting to pick up an increasing share of the cryptocurrency market. It currently stands at 21 percent, with BTC dominating at 40 percent. The last time ETH had a 21 percent share of the cryptocurrency market was in 2017. Thus, the ETH/USD exchange rate saw a smaller correction than BTC, falling 26 percent from its peak at $4800.
What could have triggered the weekend crash?
Exchanges offering leveraged instruments and derivatives on cryptocurrencies saw the equivalent of 34,000 bitcoin in capital inflows in two days. This was the largest inflow since the vacations. This in turn could have been used as collateral for a highly leveraged bet on the derivatives market, which could have broken many pending orders or stop-losses, as well as throwing off those playing for growth by having to close these positions due to lack of capital to deposit on margin.
Given the low market liquidity from Friday to Saturday and the lack of mechanisms to stop trading during turbulence, as on classical exchanges, this could have caused turmoil and panic among cryptocurrency holders.
It seems that no information of a similar nature to that of May this year has emerged. Back then, the market recovered quite quickly after a huge drop.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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