The cryptocurrency market is witnessing its largest downturn since the FTX collapse in November 2022. Factors, including geopolitical tensions in the Middle East and fears of recession, have influenced this significant drop. These developments have instilled fear, uncertainty, and doubt (FUD) among traders, leading to a substantial sell-off across major cryptocurrencies.
Major Cryptocurrencies Tumble Down
The price of Bitcoin, which peaked at $70,000 earlier, increased selling pressure in the first week of August. Bitcoin’s price dropped below $50,000 before levelling off at $55,757.15, at the time of writing. Ethereum, declined as well, falling below the $3,000 threshold. According to Coinglass data, the price drop of Bitcoin alone caused the liquidation of long positions worth about $1 billion.
Fears of a possible recession were stoked by the release of U.S. economic and jobs data, which caused a shift in market attitude. This revelation sparked a wave of sell-offs in global equities markets as well as the cryptocurrency market, coinciding with the escalating tensions in the Middle East.
The strong Japanese yen versus the US dollar made matters more complex and resulted in a large unwinding of trades across some asset groups. Taiwan’s and other Asian equities indexes saw record losses, with the Taiwanese index seeing its worst day in 57 years.
The market has acknowledged this huge decline, according to Santiment, a market intelligence platform, but the reaction hasn’t been as strong as anticipated for such a big achievement. This may be seen as a good thing, suggesting that traders are reluctant to open their wallets since fear has sufficiently penetrated the market.
Derivative Traders Loses Big-Time
The derivatives market also felt the impact of this downturn, with a massive leverage wipeout leading to significant losses for traders.
Bitcoin futures topped the losses with $420 million, while Ether futures recorded nearly $340 million in liquidated bets. This significant wipeout added to the market’s general gloomy attitude.
A fresh correction in mood has been sparked by a mix of geopolitical and economic reasons that have increased selling pressure in the crypto market.
Although there are investors who view this as a possible buying opportunity, the market is still in a cautious mood overall, with many waiting for more stabilisation before making big moves.