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With unexpected negative developments in global markets, the cryptocurrency market dropped sharply. Bitcoin (BTC) fell to $48,800, and Ethereum (ETH) dropped to $2,100. This sudden decline is attributed to aggressive sales, macroeconomic problems, and geopolitical tensions creating a perfect storm of shockwaves in the market.
Three Main Triggers of Bitcoin and Altcoin Decline
Singapore-based crypto investment firm QCP Capital identified the first trigger of the crypto market crash as the aggressive ETH sales by major players like Jump Trading and Paradigm VC. According to the firm, the large-scale liquidations by these significant market players created a domino effect, with front-end ETH volatility (vols) increasing by over 30% to reach 120%, further exacerbated by market makers struggling to cut short gamma positions. This rise in volatility indicated an extremely unstable market environment, leading to panic sales among investors.
Additionally, the firm noted that the macroeconomic sentiment worsened following the disappointing US unemployment data released last Friday. Weak labor market figures triggered fears of a slowing economic recovery, leading to sales across various asset classes.
This situation further increased volatility in global and cryptocurrency markets, with the VIX index, a significant measure of market risk, rising to 50. Such a high level was previously seen only during the COVID-19 pandemic panic and the 2008 global economic crisis, indicating the severity of the current market conditions.
According to QCP Capital, geopolitical developments also played a role in increasing market instability. The killing of a Hamas leader by Israel over the weekend escalated tensions in the Middle East. Iran’s vow to retaliate and the subsequent deployment of US troops to the region heightened global risk aversion sentiment. Investors are cautious about potential new tensions that could impact global markets and economic stability.
Cryptocurrency Market Still Shows Strength
On the other hand, QCP Capital highlighted that despite the chaos in the markets, the cryptocurrency market‘s futures basis and funding rates remain surprisingly good. This resilience indicates that fundamental confidence in long-term returns remains strong amid significant market fluctuations.
Investors may start using zero-downside strategies to take advantage of these returns and express their trading views, and such an approach could lead to recovery amid the turbulence hitting the market.
