Bitcoin (BTC) was consistently trading above $60,000 for almost a month. How come it dipped below $50,000 this week and brought the rest of the market down with it? Why is crypto crashing and will it recover? Find out in this crypto news digest by the ChangeHero team.
Quick Takeaways
- Bitcoin (BTC) is down 11% on the weekly scale, having dipped to $49,000 on Monday. The rest of the market suffered as well, evidenced by the total market capitalization breaking $1.75T.
- The most feasible reasons for this short-term crypto crash are rising fears of military tensions in the Middle East and recession in the US, coupled with an increase in interest rates in Japan.
- Will crypto recover from this dip? Analysts believe that it is more than likely, now that the sell-off in the stock market is more or less over and the crypto prices have become less volatile.
Why did the crypto market tumble down this week?
Macroeconomic Factors
The geopolitical climate in the past week was far from calm. Even in the US, the ongoing presidential race creates a factor of uncertainty that affects the crypto market sentiment. The Republican party supporters intently watch the Republican candidate, Donald Trump campaign, to evaluate his chances of victory this fall, believing it could prove beneficial to the crypto industry. The Democrats with Kamala Harris as the candidate from this party do not want to fall behind, as evidenced by the Crypto for Harris campaign.
At the same time, more voices raise concern about an impending recession, caused by the housing crisis and lagging US economic growth. Although some believe Bitcoin and the cryptocurrency market can win in this scenario, this is not the consensus.
However, there are currently more pressing geopolitical tensions outside of America. After the assassination of the Hamas leader Ismail Haniyeh in Lebanon, allegedly carried out by Israel, risks of retaliation from Iran and Hezbollah became as high as ever. Needless to say, an escalation to a local war in the Middle East would not have proved to be beneficial for the trade and economy, not to mention everything else.
A lot of the volatility in the stock markets during the past few days originated from Japan, where the Bank of Japan (BOJ) raised the interest rates for the first time in 17 years. This factor deserves some focus, so let us elaborate on it.
Market Turbulence
To make the volatility in the local stock market worse, the situation was exacerbated by the Japanese yen being a popular pick for carry trade. This term refers to borrowing the currency for a low interest rate to invest in other assets that appreciate faster than the borrowed one.
So, when the interest rates were announced to receive a sharp increase, in turn making the borrowing costs higher, investors started quitting carry-trading JPY. In a climate like this, safer asset classes receive a boost while high-risk assets such as cryptocurrencies face selling pressure.
The crypto market followed suit, and Bitcoin even found itself at the brink of a death cross, a bearish signal that often precedes continued price decline. It’s important to understand that this pattern occurred only because of short-term momentum dipping below the long-term trend.
Whales on the Move
Finally, another factor may not have contributed much to the current crash but is still in the picture. The Bitcoins from Mt. Gox’s cold wallet will soon start returning to their initial owners. On top of this, more dormant Bitcoin addresses have been waking up, some worth millions of dollars.
A common and not entirely unfounded fear of crypto investors is that when push comes to shove, whales will start dumping and put so much selling pressure, that the rest of the market would not be able to keep up. If such a scenario can unfold in Bitcoin, try to imagine how it would be in less liquid and more centralized altcoins.
How soon will the cryptocurrency market recover?
The collective question that follows any crypto crash almost immediately is how soon it will be over. This time, it seems that despite spooking the investors, Bitcoin and the crypto market at large do not intend to continue the sharp decline.
If anything, the BTC price has already bounced back, with institutional investors on the scene. From the local bottom observed on Monday, it has gained 17.5% by today. Bitcoin’s price may be removed from the March highs above $70,000 but at the very least, it is back above $57k.
August to September are notoriously slow months for huge players in the crypto markets and policies alike. After the shakeup, the cryptocurrency market appears to be more deleveraged than before, meaning lower volatility and slower but steadier recovery.
How to navigate the crypto market panic?
A brief crypto crash like the current one can provide a great opportunity to refresh the knowledge about taking action in a less-than-bullish market.
Stay informed
Keeping up with the crypto market news and alerts is almost a must to act timely. Unless you are going for a long-term holding strategy, make sure to keep an eye on the most significant news from the crypto world and global news.
In addition to the news, you should opt for more frequent updates on your open positions. Insights like market analysis are, on the contrary, something you can check every few days.
Choose self-custody
The volatility in these past few days seems to have not been severe enough to cause trading platforms to pause operations. Nevertheless, it has happened before, so if you do not want to lose access to your digital assets even momentarily, use a self-custody (non-custodial) crypto wallet.
Self-custodial wallets come in a variety of forms and are available on all platforms. You can go for a browser extension hot wallet for holding small sums and putting them to use, or stash away a considerable crypto investment securely in a cold hardware wallet.
Practice risk management
Even though it seems obvious, most financial losses in times of unrest come from irrational decisions. Although having a plan in advance does not prevent it completely, it significantly reduces the risks.
For example, if the crypto prices are experiencing volatility, consider using the Fixed Rate crypto swap on ChangeHero. This mode will provide you with a decent exchange rate sourced from our ten liquidity providers and fix the estimated result for the duration of the transaction.
- Choose the currencies on the home page, and amounts, and make sure you use the Fixed Rate. Provide your wallet address in the next step and check the details;
- Double-check the provided information, read and accept the Terms of Use and Privacy Policy;
- Send the cryptocurrency for the swap in a single transaction before it expires in 15 minutes;
- Sit back and relax. Now we are doing all the work: checking the incoming transaction and making the exchange as soon as it arrives;
- As soon as the exchange has been processed, your crypto is on its way to your wallet. You will receive exactly as much as has been estimated in step 2.
Bottom Line
Did our news digest help you understand why is crypto crashing and will it recover? We hope so! For more content like this, subscribe to our social media X, Reddit, Facebook, and Telegram and browse our blog.
