The market for crypto-currencies is racing again today.
What happened ?
There was a flash crash in the cryptocurrency market around 7:30 a.m. ET on Wednesday morning that sent most major cryptocurrencies lower within minutes. See the article: Bitcoin (BTC): Opinion & Price Analysis, what future for BTC?. While bitcoin (CRYPTO:BTC), ethereum (CRYPTO:ETH), and dogecoin (CRYPTO:DOGE) all plunged, they quickly recovered.
As of 11:15 a.m. ET, bitcoin is down just 1% in the past 24 hours to $48,036, but hit a low of $46,648 early this morning. Ethereum was down 1.7% in the past 24 hours at $3,806, but hit a low of $3,716. The second-largest cryptocurrency is down from $4,123 as recently as midday Monday.
Dogecoin had the most eventful day, trading around $0.1775 until around 5am, then dropping to $0.1695, a 4.5% decline, in around two hours. Values have recovered slightly, but Dogecoin is still down 1.6% in the last day.
So what ?
What’s up with all these wild moves, including yesterday’s sale? This may interest you: Top 3 Cryptos to Watch: Week 45-46.
This week will be a week of trading a bit odd, as many traders are taking time off and institutions are preparing their portfolios for the end of the year. This may mean selling assets that have performed well, such as cryptocurrencies, to take profits and reallocate them to other assets.
We also have a major options expiration on Friday, with 129,800 options contracts worth over $6 billion set to expire, according to Skew and reported by CoinDesk. These options can cause massive trading volume as expiration approaches as investors try to cover losses and reduce exposure as expiration approaches. This can also happen in the stock market, but options are an increasingly used instrument in cryptocurrencies as funds buy more assets and future trades become more available.
The last key was Elon Musk’s podcast interview with Lex Fridman, which was released yesterday. Musk said he doesn’t understand Ethereum, talked about a cryptocurrency like Dogecoin being used on Mars, and brought up the mysterious founder of Bitcoin. He also appeared to downplay bitcoin’s potential due to its high transaction costs. Musk can move the markets with a single tweet, and this broad-spectrum interview was seen generally by members of the crypto community as taking a negative stance, particularly on Bitcoin and Ethereum.
Cryptocurrency investors should be used to volatility, but this week has been extreme. Some of this volatility is due to the holiday week, but another part can be attributed to the huge year-end options expiries. This may interest you: New Record for Bitcoin’s Lightning Network: Adoption Grows. And this leads to extremely high volume in the cryptocurrency market.
Since there is no real fundamental news, I wouldn’t be too worried about moves this week. The fundamental crypto utility growth story continues to improve, and this is ultimately what will drive the value of the industry. In other words, there’s no reason to change your investment thesis, despite today’s volatility.
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