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Crypto crash: 4 Reasons Why Bitcoin crashed, dropping more than 11% to $30,339
Bitcoin continued to lose ground, falling below $31,000 for the first time since July 2021, and its loss from a November high to more than 50% amid a global flight from riskier assets.
In New York, the world’s largest digital coin plunged as much as 11% to $30,339 USD. This is the biggest intraday decline since January 21. Ether was down as high as 11%, Solana was down 14%, and Avalanche was down 18%.
That said, here are some of the reasons why Bitcoin crashed:
Long holders selling, not levered liquidations
“We’re seeing a slow-motion catastrophe,” said Josh Lim, head of derivatives at New York-based brokerage Genesis Global Trading. “Partially because it’s primarily been long holders selling” rather than levered liquidations, he added. “Markets are waiting and watching to see if shareholders would push some de-risking now that certain corporate treasuries are hovering near their cost basis.”
Market Correlation and Tightening monetary stance
Michael Novogratz, the billionaire cryptocurrency investor and CEO of Galaxy Digital Holdings Ltd., has cautioned that things are likely to worsen before they improve.
On Galaxy’s first-quarter earnings call on Monday, Novogratz stated, “Crypto probably trades connected to the Nasdaq until we strike a new equilibrium.” “My hunch is that there’s more harm to be done, and that we’ll be trading in a very choppy, volatile, and challenging market for at least the next few quarters before people get a sense that we’ve reached equilibrium,” says the analyst.
Bitcoin has dropped out of the trading range it has been in since the beginning of 2022, entirely reversing the most recent bull run that saw the currency reach a high of about $69,000 in November. According to Bloomberg data, Bitcoin’s 40-day correlation with the S&P 500 stock index is at an all-time high of 0.82, implying that any additional drop in equities sentiment might bring Bitcoin down with it.
A correlation of 1 indicates that two assets move in perfect lockstep, while a correlation of -1 indicates that they move in opposite directions.
Investors are fleeing speculative assets as central banks tighten monetary policy to battle spiraling inflation and dwindling liquidity.
TerraLabs sell-off its Bitcoin reserve to stabilize TerraUSD
Do Kwon, the founder of Terraform Labs, the company that runs the Terra blockchain, is working to shore up its algorithmic stablecoin, which lost its peg to the dollar after the market crash.
The Luna Foundation Guard, which was formed to protect the decentralized token and the Terra blockchain, has announced that it will issue $1.5 billion in Bitcoin and TerraUSD loans to assist strengthen TerraUSD’s peg after it fell below $1 on Saturday as crypto markets continued to fall. Kwon drew the attention of the crypto community earlier this year when he promised to buy up to $10 billion in Bitcoin to help Terra.
In an email, Steven Goulden, senior research analyst at crypto market maker Cumberland DRW, stated, “We’re monitoring closely to see how the market fares over the next 24 hours.” “This includes whether methods introduced to help strengthen reliance, such as LFG lending Bitcoin to OTC trading businesses, will be enough to hold in times of profound stress or if other stability mechanisms are required.”
Rising interest rate
According to Edul Patel, CEO of Mudrex, an algorithm-based crypto investing platform, rising interest rates are giving individual and institutional investors pause for thought about the crypto market forecast. Bitcoin’s drop of more than 30% in 2022 contrasts with a global bond and stock market decrease of more than 10% and a 2.5 percent increase in gold.