Can the Crypto Market Survive the Recent Flash Crash?

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In what has been dubbed as ‘El Salvador dip’ throughout crypto circles, the cryptocurrency market valuation dipped under the 2 trillion USD mark on September 7, the first time in three weeks. The complete market worth of cryptocurrencies dipped briefly on Tuesday final week to a low of about 1.9 trillion USD, representing nearly 420 billion USD in losses for the day, in line with Coingecko. 

Bitcoin, the largest crypto asset, witnessed a 15% drop, from highs of 51,000 USD to lower than 43,000 USD in a few hours. Other crypto property additionally witnessed double-digit drops from costs recorded 24 hours prior, with high altcoins resembling Ethereum, Solana, and Cardano shedding between 13% to 18% throughout the flash crash. 

Less than every week later, on September 13, the market confronted yet one more crash on the again of fake news that Walmart will begin accepting Litecoin funds. In lower than an hour, the complete market capitalization grew over 110 billion USD to 2.24 trillion USD at 1 PM GMT, earlier than the FUD induced a 200 billion+ USD crush again to 2 trillion USD, at 1.45 PM GMT. 

The latest risky crypto value motion is nothing in need of what was anticipated following the August altcoin rally, which mirrored “froth and retail investor mania versus sustainable beneficial properties in the market” in line with a statement from JP Morgan analysts. The rise of retail investor mania was additionally recorded in January and mid-May when crypto markets crashed about 13% and 50% respectively. 

However, in line with Steve Gregory, CEO at US-based crypto change, who spoke in an interview on September 9, not a single issue induced the latest downfall in crypto costs, however fairly a sequence of occasions occurring sequentially, and culminating on the day of the drop. 

Rolling in the deep

Agreeing with JP Morgan analysts, Gregory said the heavy retail push upward, coupled with the bullish exuberance that elevated the leverage quantities in the market, may have predicted the eventual fall in crypto costs. As retail levered their longs, whale accounts closely shorted the market, “ kicking off a cascade of liquidations”, he mentioned. 

Over 3.2 billion USD in crypto longs had been liquidated on September seventh as the market puked over 20% on most altcoin pairs. Funding charges strayed greater to about 50% annualized, indicating that an enormous variety of merchants had been keen to pay that a lot to acquire leverage – signaling a euphoric and over-leveraged market. 

Notwithstanding, the conventional finance market additionally opened the week on a low with gold, silver, and equities dropping on September seventh on the again of a strengthening greenback towards fundamental reserve currencies and a slight enhance in yield of the 10-year US authorities bonds. This may have impacted the crypto prices as properly, as these property are historically used to hedge towards inflation. 

The latest probe into Coinbase by the US Securities and Exchanges Commission (SEC) may even have performed a think about spreading concern throughout the crypto market, Gregory shared. SEC threatened to sue if the firm launches its high-yield Lend product, a lawsuit that Coinbase deems unfair given different US-based crypto exchanges provide the similar. Additionally, SEC can also be investigating Uniswap Labs, the fundamental developer behind one in every of the world’s largest decentralized exchanges, Uniswap. 

“The SEC’s consideration on Coinbase and Uniswap Labs could have rattled confidence,” Gregory additional said. “Some could even consider that this occasion might be the precursor to a different  crypto-winter.”

Nonetheless, he believes it’s unlikely for the US to precipitate the downfall of crypto “provided that lots of corporations and lots of traders will undergo”, which is much from what the SEC plans to do.  

“The US is comparatively loyal to the crypto market they usually haven’t any actual causes for extending overly strict laws on the market.” 

Finally, El Salvador saying Bitcoin as a authorized tender was the main information piece of the week however did little to cease the cascading costs of crypto. Shortly after their announcement on Monday, the residents protested the transfer inflicting unrest in the nation, which created a foul rapport to new customers aiming at adopting the crypto asset. 

Can the crypto markets wither from the bearish storms?

The market remains to be exhibiting basic alerts of the continuation of the bullish momentum heading to the final months of 2021. Bitcoin is prone to commerce in a sideways method in the coming 2 to three weeks, ranging between 45,000 USD to 48,000 USD, in line with Gregory. The market restoration is ready to be led by giant traders step by step filling their luggage as retail traders are scared away from the market with the present excessive volatility. 

Unlike the mid-May crash and its subsequent restoration, the present value downfall could not final very lengthy with BTC exhibiting alerts of near-term development again to ranges above 50,000 USD. With the rates of interest announcement from the US Federal Reserve anticipated on September 14 and September 22, it’s “potential that in the near-term BTC will actively transfer into development once more”, the government defined. 

While it’s unlikely that the Fed will considerably change the present rates of interest, the financial coverage is ready to be tightened. It’s most definitely that the assertion shall be obscure and the inflation rate will remain at the same level — 5.3 – 5.5%. This implies that there’s a chance for retailers to rejoin the market in a bid to flee inflation and shield their funds. 

So what’s the most potential state of affairs for Bitcoin in the coming months of 2021? According to Gregory, the market seems to return to its “super-cycle” in October, after ranging at present ranges for 2 to a few weeks, barring any important modifications in regulation and financial coverage. 

“The market remains to be bullish, not solely the crypto market but in addition on all the danger asset markets,” he mentioned. “The sentiment is prone to change provided that one thing modifications considerably in the financial coverage of the world’s main central banks.”

Finally, on the query of whether or not Bitcoin will ever fall under 30,000 USD once more, Gregory merely replied, “it’s unlikely”. 

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About the Author: Daniel