- A sudden market crash, triggered in part by a presidential tweet, caused a historic liquidation event that disproportionately impacted altcoins.
- The cause of the collapse was not just the tweet itself, but rather an unstable market foundation built upon excessive borrowing and leveraged trading.
- With market leverage now significantly reduced, some analysts suggest the current climate of fear may signal a prime opportunity for investors to re-enter the market.
Those who slept in last Saturday would’ve been met with a rude awakening – the single biggest liquidation event in crypto history.
In a matter of hours, nearly $20 billion USD ($30 billion AUD) was wiped from the market as over-leveraged investors had their positions unwind.
The aftermath was brutal, particularly for altcoins. Popular digital assets like Sui, Hyperliquid, Doge and XRP were hit with 30%+ drops. Some coins even fell more than 80% at their deepest trough.
At a glance, the market crash was caused by an erratic Trump tweet threatening China with 100% import tariffs.
But the crypto sphere has negotiated these types of economic policies for the best part of 12 months now. Heck, the US government was shut down when BTC hit a new all-time high.
So what gives? And will the market recover?
Bitcoin, Ethereum Fall As Market Slowly Stabilises
With interest rates finally coming down in the United States (and around the world), risk-on investing is coming back into vogue.
Spot crypto alone presents a good opportunity for high-risk, high-reward assets – but what if investors took it to the next level and added leverage to their trades?
The market was dangerously full of traders using borrowed money. Trump’s tweet was the spark of fear that ignited a fire sale, causing a domino effect of forced selling that crashed prices and in other instances, complete liquidations.
Though the market quickly reassessed the event from ‘catastrophe’ to ‘significant dip’, the ripple effect is still being felt a week later. Just last night we saw BTC fall another 2% to $108k USD. Ethereum is still trading below $4k USD.
Meanwhile, the Fear and Greed Index is currently reading 32 – Fear. So, what’s next?
Hot and Cold
From where we’re sitting, last week’s liquidation event may have been the flush-out the market needed to have.
Too much leverage, too much liquidity, too hot – the market got ahead of itself and it became unsustainable.
Now, with crypto market open interest falling 31% since last week’s peak, and sentiment downtrodden, the community is mulling over whether it’s time to start accumulating.
The answer, according to Bitwise, is yes.
Our in-house Cryptoasset Sentiment Index has dropped to its lowest level since that period, historically, such extremes have marked favorable entry points ahead of seasonal strength in Q4.
BitwiseLast week, the market was running too hot. Perhaps, now, the market is running too cold?
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