Bitcoin Hits Multi-Month Low as Stock Markets Crash

The cryptocurrency market experienced a significant downturn from August 4 to 5, with Bitcoin BTC dropping below $50,000 and Ethereum ETH falling to $2,200. This decline led to a wave of liquidations in future contracts, amounting to over $1 billion, predominantly in long positions.

Why is Crypto Crashing Right Now?

The recent collapse of the cryptocurrency market can be attributed to several factors. Firstly, there is a close correlation between crypto and stock markets, which have been falling due to geopolitical tensions in the Middle East. Additionally, abrupt changes in the Bank of Japan’s policy and the U.S. Federal Reserve’s decision to maintain interest rates have added to the uncertainty.

Another factor is the possible involvement of significant market players. On-chain analysts suggest that the market maker Jump Crypto might be behind the dump. Recently, Jump Crypto unlocked 120,000 wETH in Lido and sold a substantial portion, contributing to Ethereum’s collapse. Over the past 11 days, more than 100,000 ETH have been transferred from wallets allegedly associated with Jump Trading to centralized exchanges.

Jump Trading moved another net amount of 17,576 ETH ($46.78M) to centralized exchanges in the past 24 hours. Their remaining 37.6K wstETH ($101M) and 11.5K STETH ($26.3M) are still in their wallet and under the unstaking process.

In addition to these factors, the decline is also being fueled by Mt. Gox’s payments to creditors, weak ETF dynamics, and changes in the U.S. political landscape.

What Experts Say

Peter Schiff, economist and president of Euro Pacific Capital, believes the trend will intensify with the opening of the U.S. stock market. He noted that Bitcoin traded below $50K, down about 22% since the previous Friday’s U.S. stock market close. Schiff highlighted that Bitcoin is now down 45% when priced in gold since its November 2021 high.

Bitcoin traded below $50K. It’s down about 22% since Friday’s U.S. stock market close, and it’s now down 45% priced in gold since its Nov. 2021 high almost three years ago. It’s back above $50K now, but wait until the stock market opens and ETF holders can finally sell too.

Regarding Ethereum, a crypto analyst known as DeFi Mochi attributes the sharp fall to massive sales by significant funds such as Paradigm and Grayscale.

This ETH obliteration is largely caused by capitulation from large funds.

Has a Black Swan Come to the Crypto Market?

The “black swan” theory, formulated by Nassim Nicholas Taleb, refers to events that are difficult to predict but have significant consequences. Examples include World War I, the development of the Internet, and the 2008 Global Financial Crisis.

Several black swan events have impacted the crypto market:

  • FTX Collapse: The crypto exchange faced legal issues and internal instability, leading to a market crash as users scrambled to withdraw funds.
  • Terra Crash: In May 2022, a significant holder of UST sold all their coins, leading to a collapse of UST capital and a subsequent transfer of funds to stablecoins.
  • Coronavirus Pandemic: In March 2020, the pandemic led to a nearly 50% drop in Bitcoin’s price, with other cryptocurrencies following suit, resulting in a 40% market capitalization decline in one day.

Is It Possible to Predict a Black Swan Event and Be Prepared for It?

While black swan events are inherently unpredictable, understanding their characteristics can help investors be better prepared. These events are statistical oddities with extreme impacts, and while they are unexpected, they can sometimes be rationalized in hindsight. Being aware of these events and having a strategy in place can help mitigate their effects.

Black swan events are an inevitable part of the crypto market. They can be catastrophic, but they also present opportunities. The key is to be prepared and have a strategy in place to handle them.

Stay informed and explore more news on Global Crypto News.

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