What can we learn from today’s crypto market crash?


Cryptocurrencies suffered widespread losses today, losing value as other assets like stocks and commodities followed suit.

Bitcoin fell to $ 42,527.50, the lowest since August 7, according to figures from CoinDesk.

Other digital currencies have declined as well, as Cardano’s ether and ada have both fallen by more than 10% in the past 24 hours at the time of writing, additional data from CoinDesk reveals.

Major stock indexes were also in the red, with the S&P 500 Index and the Dow Jones Industrial Average ending the day down 1.7% and 1.78%, respectively, according to Google Finance.

The S&P GSCI Index, a widely used benchmark for commodity prices, closed 1.7% lower, according to additional data from Google Finance.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

While explanations for the causes of the massive sell-off varied, one factor mentioned repeatedly was fears that The Evergrande Group, a major Chinese real estate company, could default on its debts, which in turn could weaken the world’s second-largest economy. .

There is also uncertainty about the Federal Reserve and when it will start to gradually reduce its current monetary stimulus.

The central bank will start a two-day meeting tomorrow, and many investors will be watching to get a better idea of ​​this financial institution’s future policy actions.

One major development that stood out was that cryptocurrencies seemed to move in exactly the same direction as more traditional assets, which was not always the case.

Several analysts weighed in on this situation, offering divergent views.

Joe DiPasquale, CEO of cryptocurrency hedge fund manager BitBull Capital, spoke on this issue, saying that “initially the narrative focused on crypto being an alternative investment.”

However, “with the influx of institutional investors and a general overlap of market participants, we have seen the markets become more and more correlated,” he said.

“Going forward, we will likely see such correlations strengthen further as the group of market players in traditional and crypto markets become more homogeneous,” DiPasquale said.

Tim Enneking, CEO of Digital Capital Management, offered a similar perspective.

“Crypto in many ways is now more correlated with fiat markets as more and more ‘fiat’ investors are investing in crypto,” he said.

“A ‘risk-free’ mentality is not specific to an asset class, so when people worry (or panic) they just let it go. “

“On the other hand, there is no real reason for such a correlation. Therefore, if the fiat markets remain stable or turn bearish, investors will start looking for returns – and many will find that return in crypto, ”Enneking said.

“In other words, the crypto markets will initially follow the fiat markets, but then reverse much sooner because there is no fundamental reason for them to fall.”

“The Evergrande situation illustrates the larger debt problem (and, to some extent, the Communist government’s crackdown on certain aspects of a ‘capitalist’ economy). It was not this company that triggered the decline, but what this company represents.

“So at a fundamental level, today’s events will turn out to be positive for crypto,” he said.

As for what crypto investors should get out of it, Enneking summed it up in one word: patience.

Vinny Lingham, co-founder and CEO of Civic, also provided his thoughts on today’s price swings.

“All liquid assets are affected when global markets are disrupted. We saw this at the start of the covid.

“Crypto is not immune, but will likely outperform other assets in the long run, as money invested in crypto hedges against other risks in the wider economy.”

Pat White, co-founder and CEO of Bitwave, spoke on another key point, noting that digital currency markets are heavily exposed to global economic events.

“In terms of what to learn, I think American investors in particular should remember that crypto is global in a way that other assets are not.”

“Crypto tokens are very surprisingly exposed to various markets and countries, and if you approach crypto with a purely US-centric view, you will be surprised on days like this where something that has no meaning. relationship with the United States takes a massive hit in the market.

Disclosure: I own bitcoin, bitcoin cash, litecoin, ether, and EOS.

About Warren Dockery

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