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The Current Drop of Bitcoin, the Crypto Market Crash and the Reasons Behind it

In: Crypto, Finance, Fundamental Analysis

It’s safe to say that the crypto market is in a state of freefall now, and it has been this way for the past week or so. The massive price drops took bitcoin from $40,000 to below $30,000 in this period.

The total value of liquidations skyrocketed to over $1 billion in the past 24 hours as the crypto market collapsed.

The entire crypto market is covered in red once again, with countless double-digit losses evident across almost all charts. Bitcoin dumped by 15%, while the altcoins have it even worse with Solana, Ripple, Dogecoin, Shiba Inu, Avalanche, and, of course, Terra, leading the negative trend.

However, the past 24 hours were violent once more. After news broke about the new inflation numbers within the US, BTC dropped below $30,000, surged above that level, and plummeted once more.

This resulted in marking a new year-and-a-half low below $28,600 as reported yesterday evening, but the situation only worsened as BTC dipped to $25,400 just a few minutes ago.

Somewhat expectedly, the altcoins have capitulated even more. Ethereum is down by more than 20% to well below $2,000. Binance Coin dumped by 25% to $235. Even more massive drops are evident from Ripple (-30%), Solana (-36%), Cardano (-32%), Dogecoin (-30%), Avalanche (-35%), and Shiba Inu (-35%).

The market’s most significant loser – Terrahas plummeted to below $0.30 as of writing these lines. After the UST drama, LUNA has lost about 99% of its value in a week.

These developments have led to a high number of liquidations and liquidated traders, with over $1.2 billion wrecked in the past 24 hours, while over 430,000 traders saw their positions liquidated.

All of these events are a result of what is happening currently around the world and the way inflation is pushing Central Banks to become more aggressive and take interest rates higher. It is quite a mixture of ingredients that are taking us to these incredibly low levels.

The war in Ukraine triggered a series of events that couldn’t be anticipated by the Federal Open Market Committee (FOMC), with sanctions in place and a ban on Russian Oil, the cost of crude elevated to levels that we had not seen since the crisis in 2008, almost 14 years ago.

The Lockdowns in China, of course, are not helping and especially at times when the global economy was starting to recover from the havoc rendered by the pandemic. The resulting disruption of the supply chain has sharpened inflation even further.

In the middle of this uncertainty the vast majority of stocks fell, Futures that where considered havens against inflation and economic fluctuations have also fallen and of course the same has happened with Cryptocurrencies, and it will continue so until the Fed eases down on rate hikes and allows the economy to slowly balance out inflation.

You may wonder why? Well, keep in mind that the U.S. Dollar is the king of the market, every single pair and asset is measured against the dollar and in times of uncertainty and a possible global recession the dollar attracts large capitals for protection. And while the economic conditions of the world deteriorate, the dollar keeps on rising.

It is important to understand that most capitals invested in Bitcoin and Cryptocurrencies have not used them as a store-value asset, rather as an opportunity to take out cash, fast. When this characteristics are threatened investors start to liquidate their positions in order to stop the bleeding, most people lose faith in an asset they have seen falling so drastically and want to recuperate as much money as possible, in other words, to lose as little as possible.

A sudden surge is also possible, as BTC price drops down, the price is becoming more and more attractive to large capitals, because as soon as the situation normalizes in a couple of months, the value of BTC could rally up again and as it starts gaining momentum, more and more investors will redirect their capital to cryptocurrencies, as it will again start looking appealing to make a quick buck again.

The trend will continue bearish for now and you may see Bitcoin falling well below $20,000 in the following days, probably before the end of this month (May 2022). The reaction of the Fed to current reports will determine how far it will fall and how much longer that drop is going to last, the FOMC will deliberate on June 15, until then the direction of BTC is quite obvious.

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