The crypto market is starting the new week in deep red. There was a significant sell-off in cryptocurrencies on Monday night. Bitcoin lost almost ten percent of its value. The price losses for second and third-tier digital currencies were even greater. Ether – the number two on the market – lost 21 percent of its value at its peak. Within 24 hours, the total market capitalization of the crypto market fell by 14 percent to 1.85 trillion dollars. In one fell swoop, a good 250 billion dollars of investor money was wiped out.
The fact that the prices of cryptocurrencies fluctuate extremely is nothing new, but there hasn’t been a crash like this for a long time. This crash is a cocktail of uncertainty, consisting of concerns about recession and geopolitical imponderables. Crypto investors seem to be reacting to the negative developments on the stock market with their sales.
Investors have recently sold off many stocks out of concern about poor economic development. Anything that has to do with risk is avoided by investors in such moments. Since crypto assets are among the high-risk investments and partially correlate with the traditional stock markets, they are sold off in uncertain times.
In recent months, crypto assets have mainly recorded price gains – apart from some major fluctuations. The approval of bitcoin ETFs in January in particular gave the sector a boost.
The prospect of falling interest rates, from which cryptocurrencies tend to benefit, was also an argument for further price increases for many investors. Some investors had probably forgotten that things could also go downhill again.
What happens next depends on further economic and geopolitical developments. Further price declines cannot be ruled out, especially for technical market reasons. Many investors are now relying on stop-loss orders. This could trigger a domino effect.
There is a risk that this will trigger cascading sales orders and liquidations. However, a recovery of the crypto market can be expected in the coming weeks, as various investors (private & institutional) are repeatedly using price losses to make new purchases.
