Note: All currency is in USD
It was just last week that the combined crypto market reached a new record high of $3 trillion, but now it’s staged a massive pullback.
Bitcoin, Ethereum, Solana, Cardano, Ripple’s XRP and Binance’s BNB lost between 7 and 10 per cent in the past 24 hours, wiping more than $400 billion in value.
market analyst Josh Gilbert said the large losses may impact Bitcoin’s trajectory, but wouldn’t be enough to discourage investors.
“This may stall the narrative that some have of seeing $100,000 Bitcoin by year end, however, is unlikely to dampen sentiment too much, with fundamentals pointing towards a strong year end,” Gilbert said.
But what sparked the sell-off is still up for debate, with a few different theories floating around.
What caused the crypto sell-off?
The crypto crash was most likely the combined result of a few events.
Gilbert said the sell-off may have been the result of the passing of a new infrastructure bill in the United States which was officially signed by President Joe Biden.
“The bill includes tax reporting and provisions that apply to crypto-assets and NFTs,” Gilbert said.
Another factor was the Securities and Exchange Commission (SEC) in the US quashing VanEck’s attempt to launch a spot Bitcoin exchange-traded fund (ETF).
A spot Bitcoin ETF would be one that is “physically backed” by the crypto by investing directly in it.
This is different from the recently launched Bitcoin Futures ETF which does not directly own Bitcoin, but rather buys futures contracts, which is an agreement to buy or sell the asset later at an agreed price.
Either way, VanEck has launched its own Bitcoin Futures ETF overnight while it continues to aim for the spot Bitcoin ETF.
“VanEck Bitcoin Strategy Futures ETF will go live this week in the US, and investors are anticipated to watch the inflows very closely,” Gilbert said.
“This will not only reaffirm the positive sentiment, if strong, but may also unsettle the market if the volume is low.”
The third factor is the continued crackdown on “extremely harmful” crypto mining in China.
The Chinese National Development and Reform Commission had some harsh words about Bitcoin in a press conference in Beijing.
Commission spokesperson Meng Wei said mining “consumes a lot of energy” and “provided a lot of carbon emissions”.
Meng said China was preparing to launch a full scale clampdown on crypto mining across the country.
Will crypto recover?
It’s highly likely, according to Gilbert. He said data from was already showing signs of recovery.
“The data indicates that supply continues to drop as demand increases, with investors choosing to HODL [a slang term meaning to ‘hold’] their Bitcoin rather than sell,” Gilbert said.
“As we know, when supply drops and demand increases, prices often tend to increase as a result.”
Gilbert also pointed to rising inflation concerns as a reason more investors may jump to crypto-assets.
“The US inflation print last week illustrated more than ever that keeping cash in the bank will mean your dollars whittle away over time,” he said.
“As a result, investors will continue to turn towards financial assets such as Bitcoin, as it looks to assert itself as a serious choice for a hedge against inflation.”
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