The crypto market crash that started on Friday accelerated this week, with top coins being in the red. Bittensor (TAO) price plunged by 14%, while Aster, Immutable, Zcash, PancakeSwap, and DoubleZero being the top laggards. This article explains some of the top reasons why the crypto crash is happening.
Crypto market crash happened after last week’s liquidations
The crypto market crash is happening as stocks jump as investors focus on last week’s liquidations. On Friday, over 1.6 million traders were liquidated, with the total amount rising to almost $20 billion.
Some analysts, including Tom Lee, argue that the liquidation amount was much higher than the reported figure and pointed to the risk of leverage in the crypto industry.
Therefore, altcoins are falling as investors and traders keep off after the crash last week. Some people who were wiped out have opted to keep off the industry completely or to participate in it by just buying and holding Bitcoin.
This explains why liquidations have slowed despite the ongoing crash. CoinGlass data shows that liquidations dropped by 28% in the last 24 hours to $444 million. Also, the volume in the perpetual exchanges like Aster and Hyperliquid has dropped.
Altcoins falling as Fear and Greed Index retreats
The other main catalyst for the ongoing crypto market crash is that investors have embraced a sense of fear. The Crypto Fear and Greed Index has plunged to the fear zone of 32, much higher than this month’s high of 55.
This index looks at the overall sentiment in the crypto industry, including the market sentiment, price momentum, derivatives market, and volatility has plunged.
The fear is also happening in the broader market. Data compiled by CNN Money shows that the Fear and Greed Index has dropped to the fear zone of 30, with the stock price breadth, market volatility, junk bond demand, and safe-haven demand moving to the extreme fear zone.
Put and call options and stock price strength have all moved to the neutral zone. Historically, the stock and crypto market normally underperforms when there is a sense of fear in the market.
Trade jitters and Federal Reserve impact
The crypto market crash is happening as investors focus on the ongoing trade issues between the United States and China. Recently, China has started to push back harder against the United States.
The country has rejected American soybeans, while announcing an investigation into Qualcomm, initiated export controls of rare earth metals, and warned of retaliation against any actions by the United States.
All this will have an impact on inflation in the United States at a time when the Federal Reserve is thinking of cutting interest rates. Analysts expect that the Fed will cut rates in the coming meetings.
Therefore, the trade jitters and inflation worries mean that the Fed will not cut rates at a faster pace as expected.
Will crypto prices go back up?
Now, with the crypto market crash accelerating, the question is whether the prices will bounce back. History shows that crypto prices tend to bounce back after crashing in a certain period.
For example, Bitcoin and the cryptocurrency market plunged after the tariff announcement on Liberation Day in April this year. A month later, the Bitcoin price rebounded and hit a new all-time high.
Similarly, cryptocurrencies plunged at the onset of the Covid-19 pandemic and then staged one of the longest rallies after that.
Additionally, there are potential catalysts in the crypto industry, including the upcoming altcoin ETF approvals, potential interest rate cuts, and buying the dip.
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