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Bitcoin and the overall cryptocurrency market experienced a historic crash, marking its worst decline since the Terra Luna and FTX collapse of 2022. The crash saw Bitcoin plummet more than 10% on Monday morning, hitting a six-month low and sending shockwaves through the financial markets. The overall crypto market lost more than 12% on Monday, 5 August.
Just a week ago, Bitcoin was touching $70,000 and setting expectations for another all-time high. However, the leading cryptocurrency is now back where it was in February. Over $1billion was liquidated from the market on Monday.
So, what’s causing this crash? There are several factors driving fear today – everything from widescale economic instability to the historically-bad-for-Bitcoin astronomical event Mercury Retrograde.
Why did crypto crash today?
Market dynamics and economic indicators
The recent crash in Bitcoin and the wider crypto market can be attributed to a combination of adverse economic indicators and market dynamics. A significant factor was the increasing fears of a global recession triggered by recent US economic and jobs data. These figures sparked concerns about economic stability, causing investors to flee from riskier assets, including cryptocurrencies.
The data indicated potential economic downturns, leading to a sell-off across various markets. Bitcoin tumbled below $50,000, and other cryptocurrencies like Ethereum, Binance Coin, Cardano, and Solana saw even more significant losses. The crypto market’s total valuation fell below $2trillion to $1.85trn, highlighting the severity of the crash.
Japanese Yen surges to seven-month high against USD
Another crucial factor contributing to the crypto market crash was the rising value of the Japanese Yen against the US dollar. This increase was influenced by the Bank of Japan’s monetary policy adjustments aimed at combating domestic inflation. Historically, low-interest rates in Japan facilitated carry trades, where investors borrowed in Yen to invest in higher-yielding assets abroad.
However, as the Yen strengthened due to increased interest rates, the cost of repaying these loans surged, leading to a significant unwinding of carry trades.
This phenomenon affected not only traditional financial markets but also the crypto market. The increased value of the Yen forced many investors to liquidate their crypto holdings to cover their rising debt obligations. This selling pressure contributed to the downward spiral of crypto prices.
Leverage and liquidation cascades
The crash was further worsened by massive liquidations in the cryptocurrency derivatives market. Over $1bn in leveraged positions were wiped out in just 24 hours. Bitcoin futures led the losses with $420m in liquidations, while Ethereum futures saw over $340m in liquidated bets. The sudden price drop triggered a cascade of margin calls and forced liquidations, driving prices even lower.
Crypto-related company stocks also took a hit, reflecting the interconnected nature of the market. Major firms like Coinbase and MicroStrategy saw significant declines in their stock prices, further amplifying the market’s negative sentiment. This interconnected sell-off in both crypto assets and related equities underscored the broad impact of the crash.
Reflexive market dynamics
The crash also highlighted the reflexive nature of market dynamics, where initial movements are amplified by subsequent actions of market participants. As prices began to fall, fear and uncertainty grew, leading to panic selling and further declines. This self-reinforcing cycle mirrored the dynamics observed during the Terra Luna collapse, where market sentiment quickly shifted from optimism to fear.
Analysts noted that many traders had underestimated the potential for rising interest rates and their impact on global markets. This miscalculation led to overly optimistic positions that quickly unraveled as conditions deteriorated. The sudden shift in sentiment caused a rapid unwinding of leveraged positions, contributing to the market’s sharp decline.
Mercury Retrograde is historically a bad time for crypto
An intriguing aspect of the recent market crash is the timing with Mercury Retrograde, a period often associated with communication breakdowns and unexpected events in astrology. Although the impact of astrological events on financial markets is a topic of debate, the coincidence of Mercury Retrograde with the recent market turmoil has fueled speculation.
The belief in Mercury Retrograde affecting market behavior adds a layer of psychological influence. Traders and investors who subscribe to this belief may act more cautiously or react more strongly to market fluctuations during this period, potentially exacerbating volatility.
The current Mercury retrograde cycle, lasting from 4-28 August, coincides with significant market declines, adding to the narrative of unpredictability and heightened risk.
Historical crypto trends during Mercury Retrograde
Bitcoin crashes during Mercury Retrograde:
- 2013/14: Bitcoin experienced significant crashes around Mercury retrograde periods. For instance, after hitting $1,000 in November 2013, Bitcoin plummeted below $700 in December and continued declining through early 2014, aligning with the retrograde periods during these times.
- 2018: The so-called ‘crypto winter’ of 2018, where Bitcoin and other cryptocurrencies saw massive declines, also saw significant market activity during Mercury Retrograde phases. This period marked substantial regulatory and security challenges for the crypto market.
- 2021: In April 2021, Bitcoin reached an all-time high of $63,000 before crashing to $29,000 by July, a period that included a Mercury Retrograde from 29 May to 22 June. The market was influenced by environmental concerns and regulatory crackdowns, exacerbating the declines.
Investor sentiment and market reactions:
- Volatility and speculation: Investors often cite Mercury Retrograde as a time of heightened volatility and miscommunication. During these periods, technical and fundamental analysis can become less predictable, leading to abrupt market shifts. This belief is reinforced by the timing of notable crashes and high market activity during these astrological events.
Astrological influences:
- Geocosmic events: Analysts point to the influence of planetary alignments, such as the Mars-Uranus-Algol conjunction and Jupiter-Saturn squares, which often coincide with Mercury retrograde. These astrological events are believed to create market turbulence and contribute to the unpredictability observed during these times.
While the scientific basis for Mercury Retrograde impacting financial markets remains debatable, historical trends show that significant market events often coincide with these periods. Investors should be aware of the potential for increased volatility and consider these patterns when planning their trading strategies.
