Why are crypto markets falling? Explained
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A computer screen displays a site featuring cryptocurrency token sales Photograph: (AFP file)
Why are crypto markets falling? The ongoing US-China trade tensions have added to the fear among all investors of risk assets.
Crypto markets dipped again on Friday morning. Leveraged positions worth $1.2 billion were wiped out due to the crash. Why are cryptocurrencies crashing?
Illia Otychenko, lead analyst at the CEX.IO exchange, told DL News that Bitcoin's latest drop is driven by macro stress. He said that the US government's shutdown, global trade tensions, and the outflow from Bitcoin ETFs have created what he called a "risk-off" environment.
Dom Harz, co-founder of the BOB blockchain, said that there is a strong conviction that Bitcoin is a utility asset and not just a store of value.
Citrini Research has warned that Donald Trump’s future trade strategy will either upend the market or remain a key source of volatility. It said that promises of de-escalation or stimulus might prevent a collapse.
Another key factor to watch could be the anticipatedpolicy announcement of the US Federal Reserve. A 25 bps cut in the rate could boost investor sentiment.
What has triggered the crypto market crash?
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The ongoing US-China trade tensions have added to the fear among all investors of risk assets. Also, many investors are booking profits after the crypto market cap hit a record $4.27 trillion. The cryptomarket reacts strongly to macro and sentiment shocks.
Markets, however, recovered a bit as US-China sentiment eased.
On Friday morning, Bitcoin fell 4 per cent to around $103,550. Ethereum dropped to below $3,700, marking a 24% drop from its August peak.
On October 6, Bitcoin's value hit its highest ever at $126,251. However, since then, the cryptocurrency has lost nearly 18 per cent of its value.
The market capitalization has slid 5.9% to $3.64 trillion, which is at its lowest level since July.