What caused the crypto crash

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Again, this is led to a large-scale sell-off since yesterday, causing the crypto market crash. The exchange Whale ratio indicates the approximate size of the top 10 deposits compared to the total deposit volume across all exchanges. Also when the exchange whale ratio surges, it creates fear among relatively small investors.

Earlier this week, billionaire American investor Charlie Munger lashed out at cryptocurrency , saying that he wishes crypto had never been invented. There were also concerns about the new Covid variant, which could negatively impact the global financial state that is still trying to recover from the pandemic. Although the veteran and experienced investors are not phased by such events, new investors are easily giving in to the FUD, resulting in a large-scale crypto sell-off.

However, not everyone is seeing the crypto market crash as a negative event. NFTs are any digital asset fixed to a token, and saw an explosion of popularity in the digital art market. The popularity of digital artworks fixed to NFT technology meant many people who previously had never been interested in crypto markets poured their money in. Australian businesses exposed to the NFT market are NFT marketplace builder ImmutableX , which is down 73 per cent, and video game Illuvium , which is down 86 per cent since the start of the year.

Advertisement The only types of digital assets that have seen inflows are stablecoins. These are cryptocurrencies that trade in line with another asset like the US dollar or Australian dollar. Although the market capitalisation of Bitcoin has fallen 70 per cent this year, the market capitalisation of all stablecoins has only decreased by 11 per cent. What is causing the sell-off and is it just crypto?

There are two main reasons why cryptocurrencies of all stripes have sold off. The first is a macroeconomic one. Digital assets are notoriously volatile and subject to market sentiment and momentum, rather than fundamental analysis, so there were many excited traders trying to make money on the movements. Combined with the rise of lucrative DeFi yields, and a rush of speculation on NFTs, and crypto markets soared over the past few years.

But rising interest rates around the world means investors want to avoid holding risky assets right now. Since the US Federal Reserve started increasing interest rates in March — the first time in three years — and signalled there would be many more rises, investors have yanked their money out of riskier markets.

The US central bank acted again on July 27, lifting rates another 0. Most notably, Three Arrows Capital and crypto lender Celsius , both of which have filed for bankruptcy. Just like in the global financial crisis, these collapses come down to huge amounts of leverage and borrowing in this latest crypto cycle. It was meant to remain firmly pegged to the US dollar through a trading mechanism. But the team behind the coin was paying traders 18 per cent interest to keep the coin stable.

One was Singapore-based Three Arrows Capital. Another collapsed crypto business was Celsius , which offered customers returns over 18 per cent for depositing their digital assets. Celsius had taken those deposits and traded them in high-risk markets behind the scenes to earn the interest to pay back to customers. One investment was actually in Three Arrows Capital; an illustration of the market contagion that has crypto investors nervous.

Just how many large players are exposed to each other? Advertisement It turns out a lot. Greyscale Trust, BlockFi, Voyager are just some of the names that had huge holes blown in their balance sheets when Three Arrows Collapsed. Another crypto bank, Babel Finance, is also struggling to stay solvent. Turns out Babel was also taking depositor money and trading it without any risk controls behind the scenes. They are run by teams of people who made decisions about how much they wanted to borrow against their deposits.

They were also borrowing more and more crypto to turbocharge their returns. They took huge risks and it blew up.

Caused crash crypto what the best time of day to invest in cryptocurrency

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