28.11.2021

The cryptocurrency market fell again. What was the possible reason for the collapse of Bitcoin?

This week has had a bad start for the crypto market, with many digital assets dropping significantly in value amid uncertainty and fear that has swept the global economy.

The blame was the collapse of the US stock index S & P500 below an important trend line and the prolonged collapse of shares of one of the largest operators of residential real estate in China called Evergrande. For several months, the value of the holding’s securities fell by more than 90 percent , and the company has already admitted its inability to pay off the debt. In this regard, analysts predict possible problems for the global economy – and this also worries cryptocurrency investors.

Note that yesterday’s market crash differs markedly from the events of two weeks ago, when BTC fell by $ 10,000 during the day. It happened on Tuesday, September 7th.

Then the reason for the collapse was the lovers of margin trading, that is, crypto trading with borrowed funds. In their urge to make money in a growing market, they used too much leverage to maximize earning potential – and risk as well. As a result, a sharp drop in BTC collapsed the market and forced the exchanges to close the open positions of such traders.

And since the close means the actual sale, it put even more pressure on the market and made it fall more. In this regard, such collapses are called a “cascade of liquidations”, when, in fact, a market collapse provokes further subsidence. They happen abruptly and are very noticeable on the chart.

For example, this is happening on September 7th with Bitcoin.

Bitcoin crash on September 7, 2021

Yesterday’s sinking was smoother, but no less painful. Here are the reasons that could have provoked the market sinking.

Will cryptocurrencies save themselves from the crisis?

Over the past few days, Bitcoin has dropped below an important support level and dropped to the $ 42.8 thousand line . In total, since the beginning of September, the cryptocurrency has fallen in price by almost 10 percent .

Bitcoin crash

Bitcoin dropped to a local bottom at $ 40,200 tonight, although yesterday the asset’s value was about $ 47,000.

Bitcoin Hourly Chart

A similar situation is observed in the top 10 cryptocurrency ratings by capitalization. Almost all of them are down more than 10 percent in the past 7 days, with the exception of stablecoins, which are pegged to the dollar.

The profitability of the top 10 cryptocurrencies in recent years

Altcoin Solana suffered the most: in almost two weeks its value dropped from $ 210 to $ 137 . This drop was also triggered by local problems in the coin’s blockchain, which caused it to shut down for at least a few hours last week.

Solana price dynamics over the past few days

According to Decrypt, one of the main reasons for the collapse was the general pessimism in the US stock market: the S & P500 index has already dipped almost 1 percent , while 75 percent of its shares are trading below their 200-day moving averages. In addition, in America, there is a decrease in the demand for speculation, which can seriously curtail the flow of new capital to the markets.

The fall of the S & P500 below an important support level

Another reason: the prolonged drop in the shares of the Chinese holding company Evergande, provoked by the company’s inability to pay off its debts, the amount of which has already exceeded $ 310 billion . All this increases the pressure on the global economy, which has been growing since the beginning of 2020, including due to constant stimulus. However, now it seems that these measures will not be enough to continue growth.

Evergrande is called the “Chinese Lehman Brothers”. Recall that this is a popular American investment bank, which was the first to declare itself bankrupt amid the ongoing crisis in 2008. Experts suggest that it is with this company that the global crisis may begin, but opinions are divided here. Some analysts believe that governments will prevent the economy from collapsing, so we will face massive money printing and inflation.

Others believe that there will be a collapse, and it is cryptocurrencies with their limited supply and stable release rates that will be the insurance against the loss of asset value. Especially considering that digital assets plummeted in March 2020 amid fears over the spread of the coronavirus. And they recovered just as quickly.

Fall of Evergrande

We believe that fear of the future of the economy really affects what happens in the cryptocurrency market. And although digital assets are not directly related to the real estate market, investors will try to insure their money anyway.

Accordingly, they may want to withdraw funds from risky altcoins that used to be great for speculation. However, what will happen next is unknown, so some are trying to play it safe.

At the same time, we do not exclude that Bitcoin may indeed be among the winners against the background of deteriorating events in the economy. Yet he still has a limited supply and crazy popularity around the world. Including due to the fact that it has been a means of payment in El Salvador for two weeks.

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