Crypto Crash: Causes and Consequences for Investors

Bitcoin price increased around 4% on Monday and reached a high of $102,200 with over $46 billion in trade volume. The market closed with over 5% downturn, bringing down the market capitalization from $2.1 to $1.9 trillion. Today, the price further declined to a minimum of $94,541.19. The cryptocurrency market capitalization dropped from $3.58 trillion to $3.28 trillion within hours.

This sharp decline caused altcoins to lose a huge chunk of market cap as crypto investors started to cash out during the crypto crash. Retail investors, traders, and even crypto advocates, all suffered from market collapse and most of them lost all the gains of the recent bull run.

$483.44M Long Liquidations

When Bitcoin price broke above the psychological resistance of $100k, the investor sentiment turned bullish, pushing the BTC price and other cryptocurrencies with sharp bullish moves. However, this fleeting bullish momentum turned into a bearish nightmare causing $483 million long position liquidations across different exchanges.

Other major cryptocurrencies followed the trend. Ethereum lost over 8% of its value while Solana lost more than 7% within just 24 hours. Binance led with the most liquidations, followed by OKX and ByBit. However, according to many experts, this crypto market crash does not impact the overall bullish trend of the cryptocurrency market in the long term.

3 Reasons Behind Crypto Market Collapse

1. Global Financial Crisis

The whole financial system is interconnected and the ups and downs of US financial products impact crypto prices and other digital assets directly. The latest crypto market crash is the consequence of the S&P 500 Index fall in a single day and the strengthening of the US dollar. S&P 500 dropped 1.42% in a single day and over 2.24% so far. Several prominent US stocks followed the same trend. Tesla dropped from $425.9 to $390.4, and NVIDIA dropped from $153 to $139.

This impact was reflected as a crypto market crash, consequently pulling down crypto stocks like Coinbase and Microstrategy.

Within just 24 hours of the crypto crash, Coinbase and Microstrategy lost 8 and 9%, respectively. This also impacted Bitcoin miners like Mara Holdings and Core Scientific, pushing their prices down by 7% and 6%, respectively.

2. Securities and Exchange Commission and Interest Rate

One of the key factors responsible for the ongoing crypto market crash is the US Securities and Exchange Commission and anticipated rate cut. Due the the positive indicators, investors believe that the chances of a rate cut before June are less than 50%.

Therefore Federal Reserves might choose to maintain the current interest rate. When the interest rate is lower, investors tend to invest in riskier assets like Bitcoin. Lower interest rate cuts typically boost Bitcoin prices by increasing liquidity and reducing the opportunity cost of holding non-yielding assets. By painting the interest rate, the Federal Reserve is strengthening the dollar's liquidity and eventually strengthening it against other fiat currencies.

3. Price Correction

BTC price pumped within nearly 3% within 4 hours creating a fair value gap that needed to be revisited. As the went up, the selling pressure increased, as pointed out by the relative strength indicator (RSI).

Due to the high selling pressure at the peak combined with other fundamental factors, the price began to plummet sharply. The price started showing signs of a bullish reversal, hours ago. However, the overall market remains bearish.

In the long-term perspective, the crypto market remains bullish. As Trump takes his office, Bitcoin is expected to update its all-time high due to increased positive sentiments. However, it may try to sweep liquidity collected below $90k before starting its bullish momentum.

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