This has been the most volatile week for the cryptocurrency market in months. It all started out on a positive note with Bitcoin crossing the $51,000 mark and the crypto market cap briefly touching $2.4 trillion on Monday. However, the market took a drastic turn on September 7, 2021 as Bitcoin crashed to $42,800, and over $400 billion in notional crypto market value was wiped off. This led to one of the largest liquidation events in crypto market history, 328,000+ traders were liquidated losing a massive $3.54 billion in the process.
Over the weekend and early hours on Monday this week, the crypto market crashed again after a short-term recovery. The market is currently balancing on the fringes of $2 trillion market cap value, as Bitcoin struggles to break the $45,000 resistance level and altcoins across the board face double-digit losses.
In an interview on the current state of the market, Steve Gregory, US CEO at the crypto platform Currency.com, explained the recent crash and why investors should have little to worry about the price of crypto assets in the coming months.
Take the Stairs Up and the Elevator Down
This has been the story of the cryptocurrency market since its inception in 2009. The volatility experienced in the markets is nothing new with a plethora of reasons blamed for the collapse. As it usually is, no single reason caused the crash but rather a series of events happening sequentially, culminating around the same day conspired against it.
As the week started, a number of asset classes including gold, silver, and the S&P 500 dropped as the market opened red on Monday, leaving financial traders exposed. All this was happening on the backdrop of a strengthening dollar index against the major currencies, as well as a slight increase in the yield of 10-year US government bonds.
The market-wide drop could have been a key factor as it translated into the crypto market, according to Gregory. However, more intrinsic factors in the crypto field could have caused the flash drop in prices over the weekend, he added. As it has come to be, crypto traders are aware that the market "takes the stairs up and the elevator down." Gregory stated:
"Generally in periods with the strong price increase, especially on holiday weekends, indicates a heavy retail push upward which is coupled with bullish exuberance. This leads to increase in leverage and the larger ‘whales’ seem to heavily short the market, kicking off a cascade of liquidations."
The legalization of Bitcoin as legal tender in El Salvador was also a key point to the falling prices as citizens protested to make BTC a means of payment in the country. Notwithstanding, the US Securities and Exchanges Commission (SEC) probe on Coinbase Earn features and Uniswap Labs could have rattled buyers confidence in the crypto market. The constant SEC battles with crypto firms has made some analysts predict the start of a bear market, but according to Gregory, "this is unlikely to happen." He said:
"It is unlikely that the US will kick off the beginnings of a ‘crypto nightmare’ given that a lot of companies and a lot of investors will suffer. A new panic in the markets is the least of their priorities right now."
How Low Can the Crypto Market Go?
Having tested tis previous support levels at $42,800, Bitcoin is likely to range between this level and $45,000 in the coming month. Retail investors are easily shaken out with large downward price movements, of course, but "whale investors" are gradually buying Bitcoin, which could lead to future long term price growth.
The Currency.com executive stated:
"I do not think that we will not see a two-month sideways trend, as we did in the summer. It is possible that in the near-term BTC will actively move into growth again."
In the coming month, the US government is expected to release the data on inflation after the US Federal Reserve meets on September 14 and September 22 to make a decision on the interest rates.
Traditionally in the past, crypto assets have spiked in line with an increase in interest rates. It is quite unlikely for the Fed to raise interest rates this month with a statement on tighter monetary policy expected. If the statement is vague (as has been for the past years), the crypto markets could witness substantial growth heading to the end of the year, Gregory added.
In his closing statement, Gregory set his hopes on a recovery in the market and the continuation of the bullish momentum heading to the latter stages of the year, barring any significant changes in the central bank’s monetary policy:
"The market is still bullish, not only the crypto market, but also on all the risk asset markets. The sentiment is likely to change only if something changes significantly in the monetary policy of the world's leading central banks."
Could we see the price of Bitcoin drop below the $30,000 mark this year? "Most likely not," Gregory concluded.