What happened
Shares of major cryptocurrencies, including Bitcoin (BTC +3.35%), Ethereum (ETH +3.56%), and Dogecoin (DOGE +1.47%), each fell between 6% and 7% overnight between Thursday afternoon and Friday morning, according to data provided by S&P Global Market Intelligence, extending yesterday's Federal Reserve-induced plunge in response to a combination of several possible negative catalysts. Bitcoin, the world's largest cryptocurrency with a market capitalization of over $505 billion as of this writing, fell as low as $25,649 -- its lowest price since early June.
CRYPTO: BTC
Key Data Points
So what
One factor could be a Wall Street Journal article late yesterday detailing the finances of Elon Musk's SpaceX. The report noted Musk's privately held rocket launch and satellite operator wrote down the value of Bitcoin it owns by $373 million between 2021 and 2022, and has sold its stake in the leading cryptocurrency.
It also didn't help that heavily indebted China-based property giant Evergrande filed for Chapter 15 bankruptcy protection in a Manhattan court late yesterday. While technically not directly related to the crypto markets, the news only further spurred concerns over a potential global financial contagion if issues in China's property sector spread to other parts of the country's economy amid slowing growth.
Finally, traders in the crypto markets have noted these kinds of plunges in major cryptocurrencies tend to be become self-fulfilling prophecies of sorts; as the price of Bitcoin has rapidly fallen over the past 24 hours, the illiquid and sentiment-driven nature of the crypto markets has created conditions conducive to additional sudden moves.
According to crypto derivative data firm Coinglass, the rapid drop yesterday resulted in liquidations of over $1 billion in crypto futures over the past day alone -- a 14-month high -- with the vast majority of those liquidations in long (bullish) positions that were forcibly sold by long traders to avoid potential margin calls.
Now what
To reiterate, there's no single clear culprit for the crypto market's rapid plunge -- and in fact, there are signs of potential positive catalysts on the horizon that could stem the bleeding. Ethereum, in particular, has recouped a significant chunk of its losses already following a Bloomberg report late yesterday stating the U.S. Securities and Exchange Commission (SEC) is unlikely to block the first exchange-traded funds (ETFs) based on Ether futures. The report added that several of the Ether funds could be green-lighted by early October, which would mark a significant win as it pertains to expanding accessibility to (and providing validation for) crypto-based investments.
In any case, it pays to remember that in the absence of material news moving the markets, cryptocurrencies are often volatile, sentiment-driven investments with high risk profiles. Unless you have the stomach to endure such volatility, you might be better off putting your money to work in more conservative stocks.
