What provoked the most recent dramatic collapse in the crypto market? What was the trigger for the collapse, what are its consequences, and what predictions do experts make? Let’s review the traces of the events that took place.
Reasons for the collapse
Ahead of the upcoming The Merge event on the Ethereum network, the crypto market began to rise strongly, with the price of Bitcoin crossing the $22k mark. Quite unexpectedly for most people, on Tuesday, September 13, the triumphant rally stopped and the market experienced a sharp, deep correction — Bitcoin price fell by 7% at some point, falling briefly below $20k.
The reason for that was a strong drop in the U.S. stock market, which on average fell by about 5% in various indexes. Yesterday’s fall of the U.S. market was the largest since the COVID bottom in 2020. Such sharp stock market collapses are very rare, with such fluctuations occurring only four times in the last ten years.
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Markets are scared by data on high dollar inflation, which could lead to a rate hike by the Fed. Despite repeated reassurances from the authorities, U.S. inflation continues to be abnormally high, requiring the authorities to significantly tighten monetary policy, and this potential possibility is scaring the markets.
NASDAQ took the hardest hit, with a maximum drawdown of nearly 6%. The six largest U.S. IT companies lost more than half a trillion dollars of market capitalization on Tuesday. The world’s most valuable company, Apple, lost $154 billion, making it one of the ten largest single-day market value losses in U.S. stock market history.
Fox News even had to interrupt President Biden’s live speech about the government’s success in fighting inflation to report a record drop in the Dow Jones Index due to unprecedented inflation.
What are the impacts on crypto?
The positions of crypto investors have been hit hard. In anticipation of the long-awaited The Merge, large investors tried to make easy money on natural price growth by opening a long position (which is almost always done with leverage). It’s fair to say that such a dramatic price drop was harrowing for such investors, and tomorrow’s statistics will show the amount of liquidations and damage done.
Now it will take about three days for the traders to come to their senses. The stock market’s fall has been rather negatively overlaid by The Merge, which should happen in the next few days.
Since bitcoin is closely related to the stock market, its direction will likely be determined by the dynamics of the stock indices.
The situation is contradictory, so the direction of forecasts varies:
- A well-known trader under the nickname filbfilb in his interview (even before the collapse) assumed the fall of bitcoin from current levels to $10k. According to the specialist, the first cryptocurrency has become too strongly correlated with the NASDAQ, which is under enormous pressure because of the Fed’s policies.
- On the other hand, many experts predict a reversal in the U.S. Federal Reserve’s tight policy in 2023, which will cause a new crypto rally.
- However, there are also apocalyptic predictions, such as a recent thread from Peter Schiff, which predicts a total collapse of all markets, including crypto.
At the moment, the market holds uncertain expectations and is characterized by increased volatility.