On Friday, billions of dollars in value disappeared in just a few hours.
The crypto market took an absolute nosedive on Friday after the market opened at 8:30 a.m. ET. Bitcoin (BTC -4.19%) is down over $4,000 to $66,440 as of 3:15 p.m. ET. ether (ETH -8.09%) is down 9% to $3,216 over the same period, and Dogecoin (DOGE -11.02%) fell by 14.2%.
While the decline began early Friday, it accelerated around noon ET – then small declines turned into double-digit losses for many cryptocurrencies.
There was no major news from the cryptocurrency world today, but this type of volatility can often occur at the end of the week or over the weekend. And we got that today for the first time in a long time.
A bad week for crypto
There wasn't much good news for cryptocurrencies this week. The higher-than-expected inflation reported earlier this week led to a rise in interest rates and a decline in technology and growth stocks, all of which have traditionally been correlated with falling crypto assets. It just took a while for the market to process the news.
We have also issued a notice to Wells from the US Securities and Exchange Commission Uniswap, which is a precursor to legal action against the cryptocurrency. The market has struggled to get clarity on what is legal and what is not, but the SEC has taken legal action against high-profile counterparties such as: XRP And Coinbase. However, the SEC has also lost most of these battles, so it is not clear how the recent battles will turn out.
With a lack of regulatory clarity, it is not surprising that some investors have chosen to take profits at a market high.
Liquidations cause bankruptcy on Friday
When a crash begins, it can be accelerated by leverage in the crypto market. Not only do traders have leveraged positions, but liquidity may also decrease towards the end of the weekend, which could have made things worse on Friday.
According to Coinglass.com, $668 million worth of long positions were liquidated in the last four hours alone. Liquidations are not uncommon, but they are typically limited to a few hundred million dollars per day, not that amount in just a few hours.
The unique thing about this crash is the width. Not only Bitcoin, Ethereum and Dogecoin are in the red, smaller tokens are also falling much more.
Volatility and the week ahead
The crypto market has always been volatile, but this is an unusually large drop. It's not clear what will stop it.
In recent months, the market has benefited from billions of dollars in inflows into Bitcoin ETFs, prompting speculators to take the lead and amplify the moves. That's great on the way up, but if the trend reverses, things could be terrible for crypto assets.
I am cautious about short-term price movements in cryptocurrencies because I think investors will look for safer assets as interest rates rise and earnings season begins. However, this weekend could be the start of a particularly volatile period for the industry.
Travis Hoium has positions at Coinbase Global and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, Ethereum, Uniswap Protocol Token, and XRP. The Motley Fool has a disclosure policy.
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