Billions of dollars in value evaporated in a few hours on Friday.
The crypto market took an absolute nosedive at 8:30 a.m. ET on Friday after the stock market opened. Bitcoin (BTC 0.89%) has fallen over $4,000 in value to $66,440 as of 3:15 p.m. ET, Ethereum (ETH -0.85%) is off 9% over the same time to $3,216, and Dogecoin (DOGE -0.01%) plunged 14.2%.
While the decline started early on Friday, it accelerated around noon ET -- that's when small declines became double-digit losses for many cryptocurrencies.
There weren't any major news items out of the crypto world today, but this kind of volatility can often hit at the end of the week or on the weekend. And for the first time in a while, that's what we got today.
A bad week for crypto
There wasn't a lot of good news for cryptocurrencies this week. Hotter-than-expected inflation reported earlier this week caused an increase in interest rates and a drop in tech and growth stocks, which have all traditionally correlated with falling crypto values. It just took a while for the market to process the news.
We also had the U.S. Securities and Exchange Commission (SEC) issue a Wells notice to Uniswap, which is a precursor to legal action against the cryptocurrency. The market has been fighting to get clarity around what's legal and what's not, but the SEC has chosen legal actions against high-profile counterparties like XRP and Coinbase. Yet the SEC has also lost most of those battles, so it's not clear what the outcome of the latest ones will be.
With a lack of regulatory clarity, it's not surprising that some investors have chosen to take profits at a market peak.
Liquidations cause a rout on Friday
When a crash starts, it can be accelerated by the leverage in the crypto market. Not only do traders have leveraged positions, but the liquidity can also decline as the week ends, which could have exacerbated the situation on Friday.
According to Coinglass.com, there have been $668 million in long positions liquidated in the past four hours alone. Liquidations aren't unusual, but normally they're limited to a few hundred million dollars per day, not that level in just a few hours.
What's unique about this crash is the breadth. Not only are Bitcoin, Ethereum, and Dogecoin down, but smaller tokens are falling much more.
Volatility and the week ahead
The crypto market has always been volatile, but this is an abnormally large decline. It's not clear what will stop it.
Over the past few months, the market has benefited from billions of dollars of inflows to Bitcoin ETFs, which has caused speculators to lead the way and leverage to magnify moves. That's great on the way up, but if the trend reverses it could be terrible for crypto values.
I'm cautious about the short-term price moves in cryptocurrency because I think investors will be looking for safer investments as interest rates rise and earnings season begins. But this weekend may be the start of an especially volatile period for the industry.
Travis Hoium has positions in Coinbase Global and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, Ethereum, Uniswap Protocol Token, and XRP. The Motley Fool has a disclosure policy.
FAQs
How Flash Crashes Work. As trading becomes more digitized, flash crashes are usually triggered by computer algorithms, as opposed to specific market or company news that might prompt a quick sell-off.
What caused latest crypto crash? ›
It's true that Bitcoin's sudden drop was fueled by a wave of liquidations as traders, some of whom were leveraged 50x or more, couldn't cover their positions after prices first dipped on the war news, which led to still more selloffs.
What is causing crypto to fall? ›
However, the most significant blow for crypto in 2022 was likely triggered by the collapse of FTX in November. This was a major cryptocurrency exchange which handled around $1 billion transactions each day. Its collapse had a knock-on effect on other crypto exchanges.
What was the biggest crypto crash in history? ›
During that tumultuous period, #Bitcoin, the king of cryptocurrencies, crashed to a value below $4,000 as panic swept through the entire crypto ecosystem. Many investors and traders were caught off guard, unsure of what the future held for their investments.
What causes a flash crash? ›
A flash crash is typically caused by the rapid cancellation of orders, which amplifies price drops in a relatively brief time. Investors in the financial markets are becoming increasingly concerned about their potential impact since flash crashes can result in significant losses in a relatively short period of time.
Why is crypto getting wrecked? ›
Crypto Crash May Have Started with Derivatives
Liquidating derivative contracts like futures and options commonly follows prolonged declines in asset prices. This has been notably true for crypto this week, after the prices of Bitcoin and other digital currencies steadily fell in August.
What is causing the crypto market to dump? ›
Cryptocurrencies experience spikes and crashes due to a combination of factors, including market dynamics, investor sentiment, regulatory developments, technological advancements, and macroeconomic factors. Here are some key reasons for the volatility seen in the crypto market: 1.
Will crypto ever recover? ›
Slowly and surely, yes cryptocurrency would recover Here's an illustration Ethereum (ETH) is the world's second-biggest cryptocurrency, behind Bitcoin (BTC). It was launched in July 2015 and first traded on August 7 for $2.77. The next day, the coin's value had fallen to $0.81.
Can bitcoin go to zero? ›
A reasonable assumption that Bitcoin could hypothetically reach the null state of it's value is worth the thought. Even-though such an event is very less likely to take place, there are some factors that could theoretically lead to Bitcoin price crashing to zero.
Will crypto rise again? ›
Bitcoin, it found, is likely to hit an average peak price of $87,875 in 2024, with some experts predicting it will climb as high as $200,000. On the flip side, the average lowest price Bitcoin could hit by the end of 2024, is seen as $35,734, the report said, with some predicting it will fall as low as $20,000.
Ethereum (ETH) Price Prediction 2024-2040
| Year | Minimum Price | Maximum Price |
|---|
| 2027 | $11,892.81 | $14,527.55 |
| 2028 | $18,352.16 | $20,942.91 |
| 2029 | $26,883.31 | $31,829.82 |
| 2030 | $38,664.13 | $47,066.29 |
8 more rowsBitcoin Price Prediction December 2024
The ongoing positive trend gives buyers the advantage. Market participants are expected to strive to keep prices above $78,000, potentially ending the year strong. With positive momentum building, Bitcoin's price is anticipated to range between $79,000 and $85,000 by year-end.
What caused the last crypto crash? ›
Hotter-than-expected inflation reported earlier this week caused an increase in interest rates and a drop in tech and growth stocks, which have all traditionally correlated with falling crypto values. It just took a while for the market to process the news.
What crypto crashed the most? ›
The Biggest Crypto Crashes in History
| Cryptocurrency | Date | Cause |
|---|
| Bitcoin (whole market) | December 2017 – February 2018 | Selloff |
| $LUNA | May 2022 | UST depeg |
| Bitcoin | February 2014 | Mt. Gox Hack |
| $BCC | January 2018 | Bitconnect Shutdown |
2 more rowsJun 14, 2023
Top Losing Cryptocurrencies
| Name | Price | 24H Change |
|---|
| Basenji BENJI | $ 0.017873 | -15.94% |
| Doland Tremp TREMP | $ 0.974521 | -16.59% |
| Sealwifhat SI | $ 0.001096 | -16.21% |
| K9 Finance KNINE | $ 0.000026 | -14.28% |
67 more rowsFlash crashes refer to a scenario where the price of bonds, stocks, or commodities suddenly plunges but then quickly recovers. It is called a flash, as the market will crash suddenly but then prices will almost immediately rebound.
What does flash mean in crypto? ›
Flash coins are cryptocurrencies that are briefly sent to your wallet but don't remain there for long. They can be any cryptocurrency, including Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), or Solana (SOL).30-Sept-2023.
What is a flash dump crypto? ›
A flash dump refers to a rapid and significant drop in the price of Bitcoin over a very short period of time. This phenomenon can occur within minutes or hours, often without warning, causing sharp and unpredictable price movements. Check Today's Crypto Market: USDT/IDR.
What are the worst cryptocurrency crashes? ›
History
- In February 2011, the price of bitcoin rose to US$1.06, then fell to US$0.67 that April. ...
- In November 2013, Bitcoin's price rose to US$1,127.45. ...
- The 2018 cryptocurrency crash (also known as the Bitcoin crash and the Great crypto crash) was the sell-off of most cryptocurrencies starting in January 2018.
