The crypto crash gained steam this week, with Bitcoin and most altcoins being in a freefall and the Fear and Greed Index moving to the fear zone of 26. This article explores the main reasons why the crypto market crash is happening and whether these tokens will go back up.
Crypto Crash Driven by Fear
The main reason why the crypto crash is gaining steam is that investors have become highly fearful following last week’s liquidations. According to CoinGlass, liquidations jumped to $19 billion, a figure that most analysts believe is highly conservative.
Over 1.6 million crypto investors were liquidated. While the liquidation figure stabilized during the week, data shows that they jumped to over $1 billion on Friday as 300k traders were liquidated.
These events led to a sense of fear among investors. For example, the Crypto Fear and Greed Index has now tumbled to the fear zone of 26. Investors normally sell their tokens when there is fear in the market.
The crypto crash has also been driven by Bitcoin’s technical setup. As the chart below shows, the coin has formed a double-top pattern, meaning that it may have more downside to go. The crypto market normally underperforms when Bitcoin is in a steep downtrend.
Cryptocurrencies also tumbled because of the weak inflows of exchange-traded funds (ETF). Bitcoin and Ethereum ETFs had net outflows during the week. Also, fewer companies are launching crypto treasury initiatives.
External factors have also contributed to the weakness in the crypto market this year. For example, there are potential fears that the trade war between the United States and China will continue in the coming months.
Also, there are concerns about the regional banking and the growing private credit industries. These fears rose after two large regional banks announced huge credit losses associated with fraud. The fears were notable as they happened after the collapse of First Brands.
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Will Crypto Go Back Up?
One of the top trending questions on Google is whether the crypto market will go back up again after this collapse. While the losses may continue for a while, history shows that the rebound will happen in the fourth-quarter.
The first main catalyst that may drive the crypto market upwards is the potential approval of spot crypto ETFs by the SEC. With the deadlines of most ETFs passing, chances are that this approval will happen after the government shutdown ends.
Second, there are signs that some notable cryptocurrencies have become cheap. Data shows that the MVRV ratio of Bitcoin has moved below 1. Therefore, chances are that investors will buy the dip.
Third, history shows that the crypto market always bounces back after experiencing a major crash. Bitcoin price rebounded after collapsing during the pandemic and the FTX and Terra crash. History shows that it is common for BTC to experience corrections and then it rebound.
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