Why Is the Crypto Market Crashing?
Bitcoin (BTC) price has crashed nearly 15% since July 1. To make matters worse the total cryptocurency market capitalization has dropped by $240 billion in less than five days. so, why is the crypto market crashing?
Six key factors that have contributed to this crypto market crash:
- German government selling BTC.
- Mt. Gox payouts.
- Cascading orders leading to massive liquidation events.
- Weakening crypto market structure.
- Reduction in correlation with the stock markets.
- US Federal reserve’s hawkish stance.
German Government Selling BTC
One of the primary triggers for the market decline is the German government’s decision to sell seized Bitcoin. The German authorities still hold over 40,000 BTC, worth more than $2.3 billion at the current market prices. In addition to the panic selling before the German government offloads its holdings, the gradual selling of these large Bitcoin holdings has added significant selling pressure to the market.
The below screen shot from data provider Arkhma shows German government selling their BTC holdings.
Related: German Government Accumulates Bitcoin as Lunar Cycle Hints at Potential Rally
In response to the market correction, TRON’s founder Justin Sun tweeted that he would be open to purchase these BTC to “minimize the impact on the market.”
Mt. Gox Begins Payouts
Another factor is the impending payout from the now-defunct Mt. Gox exchange. The schedule for these payouts was released in the early Asian session on Friday. Mt. Gox will reimburse victims of its 2014 hack with nearly $9 billion worth of Bitcoin and Bitcoin Cash. The return of this large amount of cryptocurrency to the market has raised concerns about potential sell-offs, which could further impact prices.
Panic Selling Causes Cascading Liquidations
The panic selling triggered by the German government’s Bitcoin sales and the Mt. Gox payouts has led to a cascade of derivative market liquidations. According to CoinGlass data, over $990 million worth of long positions have bit the dust since July 1, compared to $206 million in short positions.
During massive sell-off events like these, this cascading liquidation forces the market to slide further lower, exacerbating the market downturn.
At the time of writing, July 5 has seen nearly $300 million in longs liquidated and only $45 million in shorts liquidations. This event, although undone, is just below the June 7 crash that wiped nearly $327 million in longs and $28 million in shorts.
Weakening Market Structure
The consistent decline in cryptocurrency prices has weakened the higher time frame market structure of Bitcoin. For example, the weekly chart shows BTC’s all-time high at $73,794 formed in May was the last swing high. After this BTC has set up a lower high in early June at $71,949 and the recent crash could lead to the production of a lower low at $53,485.
Based on simple trend identification process, BTC has satisfied the major points like a lower high and a lower low, to suggest that it the uptrend has a higher chance of morphing into a downtrend.
The gradual decrease in Bitcoin and other digital asset prices has put pressure on the futures and options markets, contributing to the downward spiral.
Weakening Correlation with Stocks
Interestingly, the crypto market has been experiencing a decline even as global stocks hit record highs. This suggests a weakening correlation between cryptocurrencies and traditional financial markets, which could be a sign of a broader market selloff.
Related: Top 5 Crypto Stocks Ready to Breakout
Federal Reserve’s Hawkish Stance
The Federal Reserve’s recent indications of potential rate cuts and other macroeconomic factors have also contributed to the crypto market’s downturn. Investors are concerned about the Fed’s hawkish stance and its potential impact on the broader financial markets.
Related: Rally in Stocks and Bonds Will Power Past a Hawkish Fed, Survey Shows
In summary, the combination of the German government’s Bitcoin sales, the impending Mt. Gox payouts, cascading liquidations, weakening market structure, decoupling from stocks, and the Federal Reserve’s hawkish stance have all contributed to the current crypto market crash. As the market continues to navigate these challenges, investors are closely monitoring the situation for any signs of recovery.
