Cryptocurrency market declined on Friday as Bitcoin, the biggest digital currency by market value, fell below $54,000 due to a disappointing US jobs data. This single day wipeout wiped out the weeks of gains and caused ripples throughout the crypto market with most of the major altcoins also feeling the heat.
In early morning trading, Bitcoin dropped to as low as $53,500, levels last seen in mid-August, data from CoinGecko shows. The sharp drop means that it is now down by more than 15 percent from Bitcoin’s recent high of $63,000 achieved only last week. At the time of writing the Bitcoin price has somewhat bounced back to $54,200, still under the 24-hour dip by more than 10%.
The cause of the crypto sell-off seems to be the August U. S. jobs report which revealed that the economy created only 187,000 new jobs last month compared to the forecasted 300,000. To add to this, the unemployment rate also increased slightly to 3. 8% to the highest level since November 2020. The poor figures have raised concerns of a possible recession and forced investors to dump high-risk investments such as cryptos.
The second largest cryptocurrency, Ethereum, fared worse than Bitcoin and fell by more than 15% to trade below $1,800. The steep drop eliminated any possibility of Ethereum having a positive year for 2024 since the token is now in the red, YTD. Other key altcoins such as Cardano, Solano, Polkadot also experienced double-digit percentage declines alongside the rest of the crypto market capitalization which lost over $200 billion within a couple of hours.
The crypto crash is taking place at a time when there is increased volatility in financial markets across the world. The global economic environment has become more volatile in the past few months due to higher interest rates, persistent inflation, and geopolitical tensions affecting performance across asset classes. However, most of the crypto analysts are of the view that the depth of the sell-off last Friday was partly due to the leverage trading in the derivatives market.
“We are witnessing a waterfall of liquidations as the longs get squeezed across leveraged assets,” said Marcus Henderson, head of research at BlockTower Capital. That’s right; the jobs report only acted as the initial catalyst while there was much irrationality that required correction in the market.”
However, according to the data from CoinGlass, more than $1 billion worth of crypto long positions have been wiped out in the last 24 hours and about 48% of that is due to Bitcoin alone. The mass liquidations probably aggravated selling pressure and caused the prices to drop as drastically as they did.
That being said, there are still some optimists among the crypto enthusiasts who do not despair at the current situation. They attribute the future increase in its price by pointing to a growing institutional investment in the asset, advances on the development of regulatory frameworks, and the next Bitcoin halving in 2024.
‘It is a healthy shakeout that will only benefit the market in the long run,’ said Meltem Demirors, the chief strategy officer at CoinShares. “This has been the trend several times in the previous bull cycles; the weak holders are squeezed out giving way for a more stable run in the later part.”
However, critics’ opinion is that cryptocurrencies are still a bubble that can be easily manipulated and highly volatile. The volatility through which billions of dollars in market capitalization can be wiped out in a couple of hours highlights the inherent risks in the embryonic asset class.
When the dust has cleared after Friday’s crash, the focus will shift to Bitcoin’s support zone of $50,000. Breaking below that level might pave way for even sharper declines and could be the beginning of the end of the 2024 crypto bull run. On the other hand, if Bitcoin can remain above $50,000 and even attempt to bounce back, it may set a platform for the subsequent higher move.
In the next few days, they will be focusing on macroeconomic variables and monetary policy outlook to get direction. While it is now evident that the crypto market is not completely decoupled from the traditional financial market, it still depends on it in terms of the overall risk aversion and liquidity. The only thing that is for sure is that there will be more fluctuations as investors try to decipher a murky macroeconomic environment and the constantly shifting landscape of cryptocurrencies.
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