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Crypto Flash Crash: What Caused Friday’s Crash
THE crypto market took a nosedive at 8:30 a.m. ET Friday after the stock market opened. Bitcoin (CRYPTO:BTC) fell more than $4,000 to $66,440 as of 3:15 p.m. ET, Ethereum (CRYPTO:ETH) is down 9% over the same period at $3,216, and Dogecoin (CRYPTO:DOGE) plunged 14.2%.
Although the decline began early on Friday, it accelerated around midday ET – this is when small declines turned into double-digit losses for many cryptocurrencies.
There was no major news in the crypto world today, but this type of volatility can often occur late in the week or on weekends. And for the first time in a long time, that’s what we have today.
A bad week for crypto
There hasn’t been a lot of good news for cryptocurrencies this week. Higher-than-expected inflation reported earlier this week caused interest rates to rise and tech and growth stocks to fall, all of which are traditionally correlated with falling crypto stocks. It just took a while for the market to digest the news.
We have also requested that the U.S. Securities and Exchange Commission (SEC) issue a Wells Notice Uniswap, which is a precursor to legal action against cryptocurrency. The market has fought to clarify what is legal and what is not, but the SEC has chosen to take legal action against high-profile counterparties like XRP And Coinbase. Yet the SEC has also lost most of these battles, so the outcome of the latest battles is unclear.
Due to the lack of regulatory clarity, it is not surprising that some investors choose to take profits when the market peaks.
Liquidations cause rout Friday
When a crash begins, it can be accelerated by leverage in the crypto market. Not only do traders have leveraged positions, but liquidity may also decrease at the end of the weekend, which could have made the situation worse on Friday.
According to Coinglass.com, $668 million in long positions were liquidated in the last four hours alone. Liquidations are not unusual, but they are normally limited to a few hundred million dollars per day, not to this level in just a few hours.
What is unique about this accident is its scale. Not only are Bitcoin, Ethereum, and Dogecoin falling, but smaller tokens are falling much more.
Volatility and the week ahead
The crypto market has always been volatile, but this is an unusually large drop. We don’t know exactly what will stop him.
Over the past few months, the market has benefited from billions of dollars inflows into Bitcoin ETFs, leading speculators to lead the way and leverage leverage to amplify moves. This is great on the upside, but if the trend reverses, it could be terrible for crypto stocks.
The story continues
I’m cautious about short-term price movements cryptocurrency as I believe investors will look for safer investments as interest rates rise and earnings season begins. But this weekend could mark the start of a particularly volatile period for the industry.
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Travis Hoium holds positions in Coinbase Global and Ethereum. The Motley Fool holds positions and recommends Bitcoin, Coinbase Global, Ethereum, Uniswap Protocol Token, and XRP. The Mad Motley has a disclosure policy.
Crypto Flash Crash: What Caused Friday’s Crash was originally published by The Motley Fool