The cryptocurrency market witnessed a sharp fall in the last 24 hours in tandem with global stock indices. Bitcoin (BTC) is down more than 7%. Meanwhile, altcoins suffered a deeper downfall with major digital tokens such as XRP, Shiba Inu (SHIB), and Litecoin (LTC) falling by double digits. What are the possible reasons for the severe downtrend?
Altcoin Market Swims in Red
In one of the largest price movements over the recent past, global crypto market capitalization has crashed over 6% in the last 24 hours to $1.06 trillion, its lowest level since the mid-June slump. The two largest cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH), were hit hard, both losing more than 7% in the last 24 hours.
However, the altcoins market was particularly hit hard with major digital tokens spiralling down double digits over the past 24 hours and over the past week. The mass sell-off in the altcoin crypto market has led to a plunge in the crypto fear and greed index, which is down 13 points and has entered the fear zone after over 5 months, with a score of 37/100.
According to CoinMarketCap, Ethereum (ETH) plunged 6.54% in the last 24 hours to hover around $1,681. Meanwhile, most of the lower- and mid-cap alts crashed harder over the past 24 hours with digital assets like XRP, Shiba Inu (SHIB), Bitcoin Cash (BCH), Litecoin (LTC) and Stellar (XLM) caught in the storm, losing over 12%, each.
In the same time frame, the altcoins Cardano (ADA) and Solana (SOL) shed 6%, respectively. Dogecoin (DOGE) tumbled more than 9% to trade at $0.061, while Polkadot (DOT and Polygon (MATIC) tanked almost 8% in the last 24 hours.
Us Stocks Fall Triggering Market Frenzy
Digital asset markets suffered one of their worst sell-offs of the year owing to several reasons including a bloodbath amid financial markets jitters with crumbling foreign currencies, Chinese economic worries and bond yields ripping to multi-year highs.
Some $821 million of long positions, traders who bet on prices to rise, were wiped out during the rush to the exits as digital token prices collapsed. Traders unable to meet margin calls saw their bets automatically exited, fueling further declines.
The crypto bloodbath comes amid a broader financial market rout as major indices dropped with the Dow Jones Industrial Average falling 0.84%, the S&P 500 shrinking 0.7% and the Nasdaq Composite slipping 1.17%. Large-cap tech stocks also pulled back as bond yields ran higher. On Aug. 17, the benchmark U.S. 10-year Treasury note yield climbed to 4.31%, the highest since October 2022.
Moreover, the US Fed minutes of the meeting for July dampened the trader’s sentiments across the globe, which hinted at more rate hikes by the US central lender. As per the minutes,
“Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”
Other Reasons Behind the Market Slump
Other numerous factors have converged to contribute to the ongoing downtrend in the cryptocurrency market. To begin with, market experts suggest that August is historically a slow month for markets in general due to summer vacations. Lower trading volumes on altcoins tend to exacerbate price declines.
Secondly, as the news broke out that Elon Musk’s SpaceX has sold its entire Bitcoin (BTC) holdings of $373 million, it spooked retail investors. As reported by The Wall Street Journal, SpaceX has cleared out its Bitcoin holdings, coming after marking down the value of its holdings for two consecutive years, 2021 and 2022. WSJ wrote,
“SpaceX wrote down the value of Bitcoin it owns by a total of $373 million last year and in 2021 and has sold the cryptocurrency.”
Last, but not least, the current cryptocurrency market slump can be attributed to the news of China’s Evergrande Group, a prominent property developer, filing for Chapter 15 bankruptcy protection in New York.
Once China’s top-selling developer, Evergrande has become the poster child of the country’s unprecedented debt crisis in the property sector, which accounts for roughly a quarter of the economy, after slipping into a liquidity crisis in mid-2021.
Thus, these factors prompted the market frenzy, inciting over 63,000 traders to swiftly liquidate their assets leading to a broader market sell-off that has impacted the current bearish sentiment in the market.