The price of bitcoin was seen tumbling to 65100, the weakest in four weeks. To many of us, this was unexpected since we were upbeat about the market following upbeat economic news lately. The decline was sharp and fierce, as the asset shed over 2% in less than an hour during US trading hours, and it's been down 7.5% over the past seven days.
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It wasn't just Bitcoin that took a hit. The so-called altcoins, or alternative cryptocurrencies, fell deeper. The CoinDesk 20, which tracks the broad market, lost nearly 12% week-over-week. Ether, the second-largest cryptocurrency, dropped to $3,400, losing more than 10% in the same period. Other popular blockchain networks' tokens, including Solana's SOL, Avalanche's AVAX, Cardano's ADA, and Near's NEAR, dropped by 15% to 20%. The numbers were astonishing and reflected how connected and volatile today's crypto market happens to be.
Another significant effect was a crash-induced liquidation of positions in leveraged derivatives.
Over the past 24 hours, nearly $180 million in such positions long betting on higher prices was wiped out. Over $870 million were seen during the entire week. Such a massive shake-out of leveraged positions undoubtedly contributed to the downward pressure on prices. It is indeed a rude reminder of the risks of trading with leverage in such a highly volatile market.
What made this crash so surprising is that just a few days back, many analysts and market participants had predicted that Bitcoin was on the verge of surging to new record highs. That optimism was fueled by softer inflation data and slower economic growth, which many expected would spur a rally in the prices of Bitcoins. But every rally attempt was quickly sold into, with Bitcoin caught in a sideways range.
The news from the Federal Reserve this past Wednesday contributed to that slide. The central bank said it expects to cut interest rates only once this year, a far more conservative approach than many had been aligning for. Investors saw any indication of easier monetary policy-particularly this summer-as supportive of a higher Bitcoin price. So, when the Fed deflated those expectations, the sell-off was on.
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Political uncertainty in Europe contributed to the crypto woes. A snap election was called upon in France, creating instability and propelling the U.S. dollar index to its most vital in over a month. A stronger dollar is usually bad news for the price of Bitcoin since it means that the cryptocurrency will be more expensive for international buyers, which then compounds the selling pressure on Bitcoin and other crypto assets.
Another aspect that cannot be left out is reportedly the behavior of Bitcoin miners and long-term holders. As it approached the $70,000 level, there was increased selling from miners probably locking in profits. In addition, long-time holders also started taking profits, putting more supply into the market when buying interest in the market was already weakening. Selling pressure from insiders, therefore became an extremely critical factor weighing on the market heavily. As this past week has shown, the crypto market remains as unpredictable as ever. Even though my views remain bullish about the long-term scope of Bitcoins and other virtual currencies, this week's events opened my eyes to staying more careful with the unpredictability and volatility of the market while taking leveraged positions. This is a time to be well-informed and always ready for any contingency in this crypto market space.
