Opinion New Massive Sell-Off hits the Crypto Market

New Massive Sell-Off hits the Crypto Market

January 22, 2022

For the second time in 2022, there has been a big selloff inside of the cryptocurrency markets. Once again, bitcoin dropped below 40,000 USD, reaching 38,600 USD in the midst of the Friday early Asia trading session. That amounted to a drop of almost 8 percent in a 24 hour period, which is more than enough to sound off a range of alarms inside of trader and investor circles. Other digital currencies did not fare any better – in fact, many had a much worse time than bitcoin, at least at the present moment. Ethereum, the second-largest cryptocurrency in the world by token price and market cap, went down over 10 percent. It reached the price of 2,840 for the first time in many weeks, while it also began from a relatively weakened position of 3,200 Cardano and solana also went down, again inside of a range that is in the 10 percent ballpark.

Smaller coins had an identical time, with a slight difference in the level of fall they experienced. None escaped the same movement of the market and that is even more worrying, even though usually BTC and ETH dictate these trajectories. At the same time, these movements show that even the start of the sell-off took place in a period of decreased activity and a massively empty space when it comes to trading volumes. Prior to this, ethereum has been moving hands on such a small level that has not been seen for nearly a year. Now, the question of the bottom remains as well as the problem of buyers stepping it – if they do not, the drop will almost certainly continue in the coming weeks. 

Support Levels Tested

Analysts have been pointing out that crypto makers have been falling on critical support levels for some time now. That induced an overall market weakness that began to become more and more prominent. Even in moments of apparent price rise, the same took place with extremely weak volumes. As a general indicator, the falling of trading volume showcases a weak demand. Because of this, many pointed out that a fall in the price value will take the markets down by double digits and that will cause a cascading effect. It resulted in the BTC trading in the low 30,000 range, with a slip below that more than possible. That means a range of testing of price support levels will take some time before the bottom is found. At the present moment, however, that bottom is like always, anyone’s guess. 

Massive Liquidation

A big increase in trading volume began to appear just as prices began to slide in a more powerful manner. That came about as many stop-loss orders came through and protected investors from a deeper dive into the negative price territory. During the first 12 hours of the crash, nearly 600 million USD came in the form of holding liquidations. Bitcoin was at the forefront of that process, shedding 250 million USD, while ETH token was second with 163 million USD. Binance was the main exchange that the liquidation took place, with over 173 million USD changing from crypto to fiat in that period. 

Out of that, 91 percent were from long positions that were probably set in place months ago. The biggest individual liquidation took place on Bitmex where a whale changed 9.9 million USD. In the coming period, the process of liquidation did not end and instead, it kept going, with funds being siphoned out of crypto and back into fiat. All the while the worries regarding the state of crypto began to grow and like it always happens in this like esports and other fast-moving digital ventures, it began to spill into social media. Here, it took a new menacing life of its own. 

Pessimism Abound

There is little doubt that the overall market sentiment is very pessimistic. Investors are because of that entering a wait and see mode, looking for a potential pathway either out of the crisis or deeper into it. With that in mind, the funds that are entering the fray are not going to be impressive in the coming days. Instead, a drop in volume might first signal a potential bottom and the stop of the stop-loss orders. 

What is indicative of the same level of pessimism is that at no point of the slide did the price rebound in any meaningful manner. That means that there are no buyers on the sidelines looking to get into the action. Instead, most believe that the change is more permanent, which also has some serious echoes of a bear market. 

Chinese Slowdown and Ukraine Crisis

Out of all macroeconomic factors, one of the biggest ones is once again China. In the country, the worries about the ongoing COVID-19 crisis and the overall economic slowdown is making many investors take a step back from almost all market moves. This applies directly to the strictly controlled remnants of the crypto markets but more than anything else, it applies to the overall global sentiment when it comes to any kind of prospective financial growth. Another factor is the recent raising of tensions in the Ukraine, where Russia appears to be poised for an invasion. That is of massive concern for NATO, but entire Europe as well. 

A conflict would directly impact the price of energy, which is already in a nightmarish state this winter in the Western hemisphere. If an invasion breaks out on almost any level, that will spell disaster for any chance of an economic rebound during the coming months. Besides, the loss of life and overall destruction would further destabilize relationships between virtually all major powers. So, with a weak economy in China and chances for a full-out war in Europe, the crypto markets will continue to suffer. There is also a chance that the same suffering will translate itself into a new crypto winter, which is sadly in many ways overdue already.