The picture across all markets was similarly grim. As for why, take a look at the prices. In investing, liquidation occurs when traders have to close a long or short position, voluntarily or involuntarily, in an asset that is performing contrary to their expectations. Investors betting on Bitcoin derivatives products futures, options, and perpetual contracts may be forced to liquidate in the event of a margin call when their account has insufficient collateral to keep the position open.
In a long position, a trader expects the asset to increase in value. In contrast, in a short position, the trader anticipates that the value of an asset will decrease within a set amount of time. If the trader thinks the price will go higher and it does, they can sit back and let the profits roll in.
But if the price goes down, the trader will have to pour more in or have their collateral liquidated. Liquidations put sell pressure on Bitcoin, which can drive the price further down, in turn causing more liquidations. Long positions took the brunt at the beginning, but mid-week that began to shift as short positions became harder hit.
Following the collapse of a major pair of tokens, some cryptocurrency lenders froze customer withdrawals, and several crypto firms have cut jobs. But as the value of highly volatile crypto currencies plummeted -- bitcoin alone has shed over 60 percent since November -- the firm faced mounting troubles until it froze withdrawals in mid-June.
Experts say perhaps not! The sharp fall has kept the crypto experts, analysts and investors on tenterhooks, baffled over the thought that Gari is India's own Terra LUNA in the making. While a few experts agreed to the point hesitatingly, others did not. Seeing the sharp drop in the prices of Solana based tokens, holders started to panic and sold off their tokens, adding to the downward trend, said Edul Patel, Co-Founder CEO, Mudrex.
Extreme volatility in the crypto markets, including so-called stablecoins, resulted in "fire sales" and amplified price falls, the bank said in its latest financial stability report.
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It resulted in a major stock crash in March, which affected Bitcoin as well. Despite the sudden flash crash, Bitcoin got back on track as early as April. Data from Bybit Is that really what happened? Several months after the stock and crypto crash, investors are drawing a different picture of the situation earlier this year. Was the stock market crash a result of the corona scare or did the economy face an economic recession and restart under the cover of Coronavirus?
Today, financial experts believe that the long-rumored economic recession, the likes of , has finally hit the economy. Moreover, they believe that lockdowns and quarantines, which significantly slowed the economy in Q2 , contributed to the ongoing recession.
According to live data from the Guardian, 19 economies are currently in a recession based on results from Q2 and Q3. European countries represent a majority of those countries, with some powerhouses outside of Europe as well. It is no rumor that the United States and the United Kingdom face economic hardship for months. Moreover, other leading economic powerhouses such as France and Germany have barely escaped a technical recession.
With the before mentioned facts in mind, I propose that the financial crash in March is not over. Its real background and impact have been postponed for reasons which I will mention in the following case. Furthermore, I argue that that Bitcoin will follow stocks in a future crash and repeat exactly what happened in March. Case 2 — U. S Elections There is one trading indicator that everyone can use without any further knowledge: election years in the U.
Historically, election years in the United States have proved to have a positive impact on the economy. Those who already passed their first term and were in power usually seek to improve on their financial results in the year of the election. Therefore, what happened so far comes as no surprise to anyone. Donald Trump, the current president of the U. Therefore, it is unlikely that the President will let the coronavirus disrupt his results, which we have seen based on his decisions during the pandemic.
Source: Tradingview All-in-all, we now have a clear picture of why stocks managed to recover swiftly after the March crash and why they even managed to reach all-time-highs. Coupled with an economic recession in the making, we can clearly predict that another stock crash is just waiting to happen after November.
For crypto investors, this is bad news. As we previously discovered Bitcoin has close ties to legacy markets. The boom triggered investment haste, as many people perceived it as a new opportunity to make money. However, the boom equally caused notable problems such as frenzy buying, fraud, and cases of hacking, which collectively contributed to the crypto market crash. In , the market corrected , and crypto investing seemed to be at its peak.
Bitcoin commands the largest share of the crypto market, and a decline in its price is more likely to cause the entire cryptocurrency market to lose value. Altcoins such as Terra LUNA and some stablecoins equally experienced massive price declines, which affected their price peg to the US dollar. The crypto crash occurred due to multiple reasons, including international geopolitics, the stock market, and the US economy.
Besides, the world is adjusting from the pandemic that saw many people invest in the crypto market and its allied businesses. As the crypto market continues to lose value, crypto-affiliated businesses such as Voyager, 3ac Celsius, and Three Arrows Capital went insolvent, as people lost faith in the market. In the meantime, the values of cryptos kept plummeting, with fewer people investing in crypto trading. A combination of these headwinds is likely to have caused the crypto crash in , broken down as follows: The presence of inflation Many people may have expected cryptocurrencies to remain stable and act as a hedge against inflation, just like gold and other precious metals had done so in the past.
According to the data published by the U. Labor Department, the annual US inflation rate has been moving between 8. The rising inflation affected the prices of everything from cars and plane tickets to groceries and gasoline. This might have led people to pull their money out of some investments, including cryptocurrencies. This trend could be one of the major contributors to the months-long surge witnessed in the crypto market up to late The volatility of speculative assets Many holders of cryptocurrencies such as Bitcoin and Ethereum see them as alternative investing options to investing in the stock market.
This emerging trend could point to people beginning to see cryptocurrencies as high-risk, high-reward assets that somehow may not be suitable investments, especially in times of instability and upheaval caused by global geopolitics and wars. The Russia-Ukraine war The ongoing war between Russia and Ukraine is likely to have affected the price of cryptocurrencies negatively.
Speculative assets such as cryptocurrencies are often more vulnerable, especially if something happens that violently shakes the global economy. With this in mind, many investors could be weighing the situation in Eastern Europe and the world at large before they can put their money in such avenues.
Understanding a bear market A bear market can be seen as an eye-opener by some investors because it flushes out malinvestment across different asset classes. For instance, during the dot-com crash witnessed in the s, several internet-based companies closed businesses. Similarly, during the cryptocurrency boom in , many tokens were launched and traded on various crypto exchanges , only to realize that many of such projects lacked utility and long-term plans for sustainability.
The crypto market crash caused many such unprofitable projects to close business while legitimate projects and businesses carried through the storm. A similar situation was replicated in , as projects that could not withstand the storm, such as the ones mentioned above had to whittle down.
When choosing investments, investors should research the projects thoroughly and get to know their objectives, including: What problems are they trying to solve, and how? Who else is competing in the space? What work has already been done? Has it lived through a bear market and survived? What can you learn about the people involved?
In essence, investing in speculative assets should be informed by the fundamentals and long-term conviction of the projects instead of emotions, mainstream, or social media hype. However, there are potential risks of buying crypto in a bear market. In such times, many people would take unmeasured risks. Oftentimes, newcomers enter the market at such times out of FOMO, which may drive them to invest in projects that may not be sustainable.
Importantly, before investing in a bear market, people need to ask themselves what amount of money they can actually afford to lose, as any investment comes with inherent risk. On the other hand, bear markets can provide potential opportunities for investors who target the long run, as most assets trade at a fraction of their actual values. How to invest during a recession While investors can lose money in a bear market, the situation presents a unique opportunity to take advantage of unrealized losses.
This practice can be profitable if and when the prices come back to their previous or new highs. Using indicators to identify the best entry point This method mainly applies to traders and investors with a basic or advanced understanding of technical analysis. They can predict the price of an asset, and analyze indicators and chart patterns to help them determine when an asset has reached a bottom. While no indicator is completely foolproof, they can provide a strong signal when to buy a dip, especially when using the Relative Strength Index RSI indicator.
The RSI is a momentum oscillator that comprises a channel and a line that moves in and out of it.
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