Cryptocurrencies experienced a sharp decline on Monday (August 5, 2024) due to risk aversion in global markets, with Bitcoin dropping more than 16% and Ether facing its biggest fall since 2021.
Bitcoin, the leading token, plummeted 15.42% to $51,441 at 11:00 AM UTC, according to Coinmarketcap on Monday.
This drop extends a more than 26% decline over the past week, marking the worst fall since the collapse of the FTX exchange.
Meanwhile, Ethereum lost over a fifth of its value before slightly recovering to $2,265. Most major coins suffered losses.
This downturn coincides with a global stock sell-off, reflecting concerns about economic prospects and doubts over whether the massive investments in artificial intelligence will meet high expectations.
Geopolitical tensions in the Middle East further exacerbate investor anxiety.
U.S.-traded Bitcoin exchange-traded funds (ETFs) saw their largest outflows in about three months on August 2.
Digital assets have partly fallen victim to the unwinding of yen carry trades as speculators adjust to higher interest rates in Japan, according to Hayden Hughes, Chief Investment Officer of Crypto at Evergreen Growth.
“These investors are also facing sharply increased hedging costs based on the volatility of the U.S. dollar-Japanese yen trading pair,” Hughes said, as reported by Bloomberg.
Bitcoin has been shaken by various factors since reaching a record $73,798 in March. These include U.S. political fluctuations as pro-crypto Republican Donald Trump and his Democratic opponent, Vice President Kamala Harris, who has yet to detail her digital asset policy, compete in the presidential election.
The market is also overshadowed by the potential sale of Bitcoin seized by the government and the risk of oversupply from tokens returned to creditors through bankruptcy proceedings.
Bond traders have increased their bets on U.S. interest rate cuts starting in September to support economic expansion.
“A looser monetary policy outlook is actually good for crypto,” said Sean Farrell, Head of Digital Asset Strategy at Fundstrat Global Advisors LLC.
Bitcoin’s decline to its lowest point on Monday puts the token at levels last seen in February. Meanwhile, Ether previously fell back to prices seen at the turn of the year. Similar to Bitcoin, it is unclear how investors in the new U.S. spot Ether ETFs will react.
Sometimes real economic-political phenomena intersecting with crypto can trigger price increases.
For instance, crypto adoption is very high in countries experiencing hyperinflation and currency collapse, so much so that crypto is starting to be used for shopping and paying rent.
Next, technical analysis focuses on historical data and price trends to predict future price movements.
As a result, if positive sentiment persists, technical analysis allows for the potential continuation of a bullish trend.
Finally, on-chain analysis is a more sophisticated technique often used by professional traders to gain direct insights from blockchain activity.
This information is very useful for predicting short-term price movements based on market participant behavior.
Using platforms like Glassnode, investors can track indicators such as Bitcoin inflows and outflows on exchanges.
For example, investors can understand the movements of large crypto holders thanks to on-chain analysis. One instance is the massive sale of BTC owned by the German government some time ago.
Currently, BTC on-chain analysis shows more investors selling at a profit, but the movements of long-term BTC holders tend to be below average.
This analysis illustrates that the majority of long-term BTC holders still believe that prices can rise again.
Therefore, it is important for investors to use a combination of these three types of analysis to make more accurate decisions. Each type of analysis has its own strengths.
By understanding all this, investors can better position themselves in a cryptocurrency market currently experiencing high volatility.