What Triggered The Flash Crypto Crash?

What Triggered The Flash Crypto Crash?

3 min read

Bitcoin’s abrupt 10% drop on Wednesday which saw BTC plummet from approximately $45,000 to a low of $40,800 within a matter of hours sent shockwaves through the crypto market leaving investors scrambling for explanations as to why is crypto down.

In the wake of this unexpected crypto crash, various theories and hypotheses have emerged, attempting to shed light on the reasons behind the sharp decline, as the crypto community strives to make sense of the complex factors influencing the market dynamics.

Matrixport Report Sparks Controversy and Cascading Liquidations

One potential culprit, as reported by CoinDesk, was a report released by Matrixport, a Singapore-based digital asset firm. The report, written by Markus Thielen, predicted the rejection of all spot Bitcoin exchange-traded fund (ETF) applications by the U.S. Securities and Exchange Commission (SEC). This contradicted the previous day’s optimism, where a BTC rally to $50,000 was anticipated upon imminent approval.

Jihan Wu, co-founder of Matrixport, downplayed the report’s impact, citing weakness in crypto-related stocks preceding Thielen’s analysis. Analysts, however, refuted Matrixport’s contrarian stance, emphasising the lack of evidence supporting SEC rejections. The market experienced a cascade of liquidations, with nearly $560 million in leveraged long derivatives wiped out, leading to a sharp decline in Bitcoin’s value.

Jim Cramer’s About-Face and Market Sentiment

Adding to the market turbulence was Jim Cramer, a prominent CNBC host and former hedge fund manager. Cramer’s positive comments about Bitcoin on Tuesday, reversing his negative stance from October, raised eyebrows among observers. While it’s unlikely that Cramer’s remarks directly caused the crash, his comments were retrospectively seen as a potential precursor to the falling prices.

Cramer’s reputation for unpredictable takes, as humorously depicted in memes, contributed to the speculation surrounding his influence on market sentiment. Despite the dip, Bitcoin is still up approximately 60% since Cramer’s October bearish outlook.

Market Overheating and Over-Leveraging

K33 Research Senior Analyst Vetle Lunde highlighted the market’s overheated and over-leveraged conditions as significant contributors to the crash. High leverage, particularly in long positions, made the market highly susceptible to downside volatility. Lunde pointed to funding rates and futures premiums exceeding annualized rates of 50%, leaving the market exposed to a swift downturn.

The Matrixport report served as a catalyst, prompting the unwinding of overleveraged positions, and triggering cascading liquidations. CryptoQuant analysts also attributed the decline to exceptionally high funding rates in the Bitcoin futures market, coupled with selling pressure from miners and profit-taking by short-term holders.

Spot Bitcoin ETF Approval Still Likely

Despite the recent downturn, analysts remain optimistic about the eventual approval of spot Bitcoin ETFs in the U.S. LMAX strategist Joel Kruger emphasised the consensus that approval is a matter of “when, not if.” K33’s Lunde echoed this sentiment, citing Grayscale’s court win and ongoing discussions between the SEC and issuers as supporting evidence.

Kruger anticipates a short-term pullback, with a potential 10% Bitcoin rally within one to two days of the approval’s announcement. He further predicts all-time high prices for Bitcoin later in the year.

Crypto Crash: Bitcoin Dips Below $43k as Altcoins Witness Market Volatility

In the wake of Wednesday’s crypto crash, the market is experiencing a noticeable downturn today. Bitcoin has retreated by 5.6% in the last 24 hours, settling at $42,466 at the time of writing. This dip follows the recent surge that saw Bitcoin surpassing the $45,000 mark for the first time in over a year.

The broader market mirrors Bitcoin’s decline, with notable altcoins such as Avalanche and Dogecoin witnessing a 9% drop. Other major altcoins like Solana, XRP, and Cardano also face more than a 5% decline in their prices. The heightened volatility underscores the market’s sensitivity to external factors and regulatory developments, and scepticism about the imminent approval of Bitcoin ETFs contributing to the bearish sentiment.


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