Bitcoin hits multi-month low as stock markets crash. What happened to crypto market crypto on black Monday?
Table of Contents
- Why is crypto crashing right now?
- What experts say
- Has a black swan come to the crypto market?
- Is it possible to predict a black swan event and be prepared for it?
From Aug. 4 to 5, the crypto market experienced a significant drawdown. Bitcoin (BTC) fell below $50,000, and Ethereum (ETH) — $2,200. Following BTC and ETH, other crypto assets from the top 10 by capitalization also were in freefall.
BTC price chart | Source: TradingViews
A significant drawdown caused a wave of liquidations in future contracts. Over a day, the figure amounted to more than $1 billion, with a significant prevalence of long positions.
Why is crypto crashing right now?
The collapse of the cryptocurrency market is associated with several factors. Thus, crypto shows a close correlation with stock markets, which have fallen since last week. In turn, they are also influenced by geopolitical tensions in the Middle East.
The latest abrupt changes in the Bank of Japan’s policy and the refusal of the U.S. Federal Reserve to lower the interest rate also add uncertainty.
In addition, community members are discussing the involvement of a significant player in the market dump. On-chain analysts hint at the liquidation of the market maker Jump Crypto. Earlier, Jump Crypto unlocked 120,000 wETH in Lido and sold most of it, giving momentum to the collapse of Ethereum.
Spot On Chain specialists note that over the past 11 days, more than 100,000 ETH have been transferred from wallets allegedly associated with the Jump Trading company to centralized exchanges. The company began moving assets on July 25 — two days after the official launch of the Ethereum ETF in the United States.
[Update] Jump Trading moved another net amount of 17,576 $ETH ($46.78M) to CEX in the past 24 hours!
This solely came from their existing $ETH holding.
Their remaining 37.6K $wstETH ($101M) and 11.5K $STETH ($26.3M) still remain in their wallet and under the unstaking process… https://t.co/fNn4RKejgf pic.twitter.com/Koab3o8ybV
— Spot On Chain (@spotonchain) August 5, 2024
On Aug. 4, another 17,576 ETH worth $46.78 million were withdrawn from the Jump Trading address. The total amount of assets transferred to exchanges exceeded 104,000 ETH. According to the Arkham Intelligence platform, the firm continues to hold assets in rETH, wstETH, and Ethereum worth $109.4 million.
Source: Arkham Intelligence
In addition, the crypto market’s decline is being fueled by Mt. Gox‘s payments to creditors, weak ETF dynamics, and changes in the political race in the United States.
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What experts say
Economist and president of brokerage company Euro Pacific Capital Peter Schiff is confident that the trend will increase by the start of trading on the U.S. stock market.
He noted that gold fell 45% from its maximum in November 2021. Now, it has recovered to a level above $50,000, but it is worth waiting for the stock market’s opening.
#Bitcoin traded below $50K. It’s down about 22% since Friday’s U.S. stock market close, and It’s now down 45% priced in #gold since its Nov. 2021 high almost three years ago. It’s back above $50K now, but wait until the stock market opens and ETF holders can finally sell too.
— Peter Schiff (@PeterSchiff) August 5, 2024
Speaking about the fall of ETH, a crypto analyst who goes by the nickname DeFi Mochi in X believes that the main reason for the sharp fall of ETH is massive sales by significant funds. Market players such as Paradigm and Grayscale contributed to the decline.
This $ETH obliteration is largely caused by capitulation from large funds
Below are the sells from these funds denominated in $ETH
– @paradigm : 46K $ETH ($138M $ETH @ $3000)
– @Grayscale : 372K $ETH ($1.1B $ETH @ $3000)
– @jump_ : 20.2K $ETH ($60m $ETH @ $3000)
While the… pic.twitter.com/zGussq65hA
— Defi_Mochi (@defi_mochi) August 5, 2024
Has a black swan come to the crypto market?
The “black swan” theory applies to both traditional and crypto markets. Let’s investigate how this happens.
The theory was formulated by an economist and author of the bestseller “The Black Swan”, Nassim Nicholas Taleb. The term refers to events that are challenging to predict or prominent but ignored, with significant consequences.
Taleb explains that for hundreds of years, people believed all swans were white, and a black swan was seen as a sign of impossibility. However, this assumption was turned upside down when Europeans first visited Australia and were shocked to find black swans swimming in their lakes.
In his book, Taleb calls World War I, the development of the Internet, and the 2008 Global Financial Crisis black swans.
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What do these unexpected events have in common? Three defining characteristics must be present for a black swan event to occur.
First, the event must be unlikeable: a black swan event is always a statistical oddity. The probability of it happening is low, and there may have been countless times when similar conditions did not result in such events.
Additionally, a black swan event has an extreme impact: when a black swan event does occur, it significantly impacts the world around it. This impact can be positive, but in most cases, it is catastrophic.
However, such an event is easy to explain. despite the unexpectedness of black swan events, people may later realize that such improbable events could have been predicted.
Significant black swans of the crypto market
FTX
One of the most notable black swans of 2022 was the collapse of FTX. The crypto exchange faced legal problems, internal instability, and an SEC investigation. The market crashed as panicked users tried to withdraw their funds from the exchange, and many FTX users could not get all their money back before the exchange closed.
Terra Crash
Due to the interconnectedness of specific cryptocurrencies, unpredictable events can cause several coins to crash at once. In May 2022, one Terra user who held a considerable amount of UST (now known as USTC) sold all his coins. This led to a collapse of UST capital, and users began to transfer funds to stablecoins.
You might also like: Terra (LUNA) price prediction: Is there a chance for LUNA to return to its all-time high?
Coronavirus Pandemic
In March 2020, one of the first black swan events for cryptocurrencies appeared — the coronavirus pandemic, which affected all markets, including crypto. Analyst Willy Woo noted back in March 2020 that something strange was happening in the market, which was reflected in investor activity. At the same time, Woo suggested that the industry faced a black swan.
This is a chart of on-chain “investor activity” right now. Long term looks solid. Short term is very weird, normally it’s smooth oscillations, not anymore, it’s like something hit it (#COVID19?), it’s fizzing out. Waiting for this to reverse before we put in a bottom. Maybe soon. pic.twitter.com/uy9gSeE3Ts
— Willy Woo (@woonomic) March 10, 2020
Just one day after the World Health Organization officially recognized the pandemic, the price of Bitcoin fell by almost 50%. Other cryptocurrencies soon followed suit, and the market capitalization fell by 40% in one day. For some investors, this meant financial ruin.
Is it possible to predict a black swan event and be prepared for it?
The sharp collapse of the crypto market and Bitcoin’s rollback to a multi-month low may indicate that the crypto industry was unprepared for the consequences of the recent weeks. However, a black swan implies more protracted drawdowns in the crypto market, so it seems premature to talk about its occurrence.
It is important to remember that black swan events are an inevitable part of life in the crypto market. They can be catastrophic, but they can also represent opportunities. The key is to be prepared for them and have a strategy in place in case they occur.
The most important thing to remember about black swans is that they are unpredictable. It is impossible to know when and where they will occur or what precisely the consequences will be. However, investors can be better prepared for them and use them to their advantage by being aware of them and understanding how they work.
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