The crypto crash continued this week, with Bitcoin and most altcoins being in the red and the Fear and Greed Index falling to the extreme fear zone.
Bitcoin price dropped to $66,000 on Thursday, while top altcoins like Optimism (OP), Humanity Protocol, Zcash, Jupiter, and Lighter fell by double digits in the last 24 hours.
Why the Crypto Crash is Happening
The crypto crash is largely due to waning demand from retail and institutional investors. American institutional investors who boosted their accumulation last year have largely stayed away this year, except for a few outliers like Strategy and BitMine.
Data show that the Coinbase Premium Gap has continued to fall, a sign that demand from American investors has dried up. Also, more data show that spot Bitcoin and Ethereum ETF outflows have continued to rise this year, while futures open interest has dropped.
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At the same time, Bitcoin has not lived up to its mission. It has not jumped in periods of elevated risks, meaning that it is no longer a safe haven.
Gold, on the other hand, jumped to a record high as the geopolitical risks between the US and Iran have accelerated. Some top experts, like Scott Ritter and John Mearsheimer, have predicted that Trump will ultimately attack in the next few days or weeks as he is under pressure from Israel and Republicans.
An attack on Iran will have major implications, including an inflation surge, which will make it hard for the Federal Reserve to cut interest rates more times than expected.
Bitcoin and other altcoins have not proven effective hedges against currency debasement, as they have remained under pressure even as the US dollar has crashed.
Most recently, Bitcoin and crypto prices have dropped due to the stalled CLARITY Act, which aimed to clarify the roles of the SEC and the CFTC.
Most importantly, analysts believe that the launch of the TRUMP and MELANIA meme coins has contributed to the crypto crash by draining liquidity from the market. That happened as the two coins soared and then slumped shortly afterwards.
Will the Crypto Market Recover?
The question among analysts and traders is whether the crypto crash will end and a new bull run will start. For one, all the recent recovery attempts have become dead-cat bounces.
History shows that Bitcoin and other altcoins go through boom-and-bust cycles. In a recent note, Tom Lee noted that the Ethereum price has experienced eight major drawdowns of 50% or more since 2018. Bitcoin has had similar crashes over time.
All these coins often crash and then bounce back, often in a V-shaped recovery. For example, Ethereum bottomed at $1,385 in April last year and then rebounded to nearly $5,000 a few months later.
Therefore, history shows that crypto prices always bounce back. The challenge, however, is that there is no clear catalyst that will boost prices this year. For example, Bitcoin and Ethereum recovered after a crash in April, following Trump’s hint that he was negotiating reciprocal tariffs.
As such, there is a likelihood that Bitcoin, Ethereum, and the broader crypto market will remain under pressure in the coming months until a clear catalyst emerges.
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