On Wednesday, Bitcoin and the broader crypto market experienced a flash crash, wiping off approx. $200 billion in investments. The largest cryptocurrency by market cap, Bitcoin, fell by roughly 10% and is currently hovering below $42,000, the weakest since September.
Bitcoin had earlier in November 2021 scaled new heights with an all-time high of $69,000 after Bitcoin futures-based ETF was allowed on NYSE.
The sell-off wasn’t restricted to Bitcoin alone. Ether and Binance Coin, the second and fourth most prominent cryptocurrencies, also tumbled to October levels. Popular DeFi application tokens like Uniswap and Aave also saw a decline.
The crypto market seems to be working in tandem with each other.
What led to the Flash Crash?
The recent swings in cryptocurrency prices can be attributed to several factors. In particular, a volatile period for the financial market has meant trouble for assets across the spectrum, including stocks and crypto investments.
Spiking inflation across countries has forced central banks to tighten monetary policy. The US stock markets fell by nearly 2% just minutes after the Federal Reserve’s plan to hike interest rates earlier and faster than expected broke out. Soon, bitcoin and other altcoins followed suit.
“Overall, I think the global markets have shown weakness in light of the recent Fed moves to raise interest rates. Hence, I do think the drop yesterday is quite correlated.” noted Vijay Ayyar, VP at Luno, to CNBC.
Also, a lack of interest/demand owing to the holiday season has resulted in a weak crypto price sentiment over the past four weeks. Check the current BTC to INR rate.
What lies ahead?
Despite scattered forecasts from several market observers, green shoots are aplenty.
For one, the bitcoin derivative market has shown signs of renewed interest after taking a beating at the end of 2021. BTC denominated Open Interest (OI) had returned to levels it hit in November when bitcoin reached an ATH of $69,000. As per analysts at Arcane Research, this indicates “explosive” price action for BTC.
“BTC denominated open interest in BTC perpetuals surpassed November highs today with the leverage accumulating on neutral to slightly below neutral funding rates. Seems explosive tbh,” tweeted Vetle Lunde, an analyst at Arcane Research.
“If you think of the movement today as mostly technical, then you’re going to see a lot of people excited to get in on the bargain sale,” noted Pat White, the CEO of Bitwave.
Similarly, some observers believe the flash crash provided an opportunity for businesses and institutions that missed the BTC train the last time around.
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Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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