Lessons from yesterday’s crypto market crash

Yesterday’s widespread losses in the crypto market stretched into today and behind other assets like stocks and commodities.

Bitcoin has fallen to a 24-hour low of $ 40,468, which is also its lowest since Aug. 7.

Bitcoin price 4-hour chart | Source: Tradingview

Other cryptocurrencies are also dire, with ETH and ADA both down about 5% at press time on the day.

Major stock indices were also in the red, with the S&P 500 and Dow Jones losing Monday’s session 1.7% and 1.78% respectively, according to Google Finance. At the same time, the S&P GSCI index, a widely used benchmark for commodity prices, closed 1.7 percent lower.

While there are many reasons for the widespread sell-off, the most common fears are that China’s real estate giant The Evergrande Group could default on its debts, undermining the world’s second largest economy, Bitcoin Magazine reports.

There is also uncertainty about the Federal Reserve and when the Fed will begin scaling back its current monetary stimulus.

The central bank will begin its two-day meeting on September 21st and will attract investor attention to better understand the financial institution’s future policy moves.

A prominent development to watch out for here is that cryptocurrencies are apparently moving in exactly the same direction as traditional assets. This situation doesn’t always happen.

Several analysts weighed in and had different views.

Joe DiPasquale, CEO of crypto hedge fund manager BitBull Capital, repeats “the early history of cryptocurrency that focused on being an alternative investment.”

“However, with the influx of institutional investors and the overlapping of market participants, we have observed an increasing correlation between the markets. Such correlations are likely to increase further in the future as the participant pool in the traditional and crypto markets becomes more homogeneous. “

Tim Enneking, Managing Director of Digital Capital Management, sees it similarly.

“Cryptocurrency is more closely correlated with the fiat market because more and more investors are pouring fiat into crypto. The hedging mindset isn’t limited to just one asset class. So when people get nervous (or panicked), they sell everything.

Otherwise there is no real reason for such a correlation. So if the fiat market stays flat or turns bearish, investors will be looking for profits and many will find that profit in crypto.

In other words, the cryptocurrency markets initially declined in line with the traditional market, but then soon reversed as there was no fundamental reason for further decline.

Evergrande is a vivid example of the debt problem in general. Note that it is not the company that is triggering the decline, it is only representing it.

On a fundamental level, the current events will therefore prove to be positive for crypto. “

What crypto investors should learn from this fact, Enneking has summarized in just one word: “Patience”.

Vinny Lingham, co-founder and CEO of Civic, also gave some suggestions on yesterday’s price move.

“All liquid funds are affected by global market disruptions. We saw that when the Covid pandemic began. Cryptocurrencies are not immunized assets, but they can outperform others in the long run as money flows into crypto for a different hedging purpose in the broader economy.

Pat White, Bitwave Co-Founder and CEO, raised another key point, noting that the cryptocurrency market is also badly affected by global economic events.

“For what to learn, US investors in particular should remember that crypto is as popular around the world as other assets really aren’t.

Tokens are exposed in very surprising ways in many different markets and countries. If you came to crypto with a completely US-centric perspective, you’d be surprised on days like these when something unrelated to the US has such a huge impact on the market. “

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Minh Anh

According to Forbes

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