Opinion Valuable Lessons from the Latest Crypto Market Crash

Valuable Lessons from the Latest Crypto Market Crash

September 25, 2021

2021 seems to be a year that is ripe with both crashes and stellar ascents from the domain of cryptocurrencies. Recently, the global crypto market saw yet another massive drop in value, taking both market capitalization and price worth of the BTC token, but also many other digital currencies. These coincided with the overall slaughter in the stocks and commodities, all of which generated a steady downwards feedback loop. Starting with Friday, September 17, the shaky nature of the big cryptocurrencies, like ethereum, began to spill over across the markets. Soon enough, bitcoin fell to 42,000 USD, which was the first time this price range was back on the investor and trader menu since August 7. 

Other cryptocurrencies also suffered substantially as cardano and ETH both went down by over 10 percent in under 24 hours. At the same time, the major stock indexes were all also deeply in the red. Both the Dow Jones Industrial Average and S&P 500 finished the day lower by over 1.7 percent, just as the S&P GSCI index. All of these came as a bit of shock for the crypto market and its participants, who are otherwise well-versed in all manner of sudden price drops. But, the process, like any other crash, did not happen in a vacuum. Instead, a range of influences coincided in a constellation that saw the prices plummet.  Now, everyone is trying to figure out what that constellation is and whether it is still shining brightly over the crypto markets. 

The Chinese Factor

Explanations of what took place in the crypto markets vary greatly, but most of them have one element that is repeated on a regular basis. That is the Evergrande Group, which is a big Chinese real estate company. Even though most people around the world never heard about it, the company could be a major element in the ongoing financial tribulation across the world, including the crypto markets. There are presently strong worries about the same company and its potential to default on its big debts.

That would in turn provide a big weakening of the Chinese economy, which is presently the second largest in the world. So, when fears about the Evergrande Group began spreading across the markets, they also inevitably reached the area of crypto investment and trading. As a domain that is more than fertile ground for fears and doubts of all kinds, the rumor of Evergrande issues quickly got wings and these transformed into a substantial slide in the crypto price and market capitalizations of individual tokens. 

FED Issues

Besides the turmoil in the Chinese real estate market, there are also numerous problems regarding the US economy. The Federal Reserve is generating a lot of those uncertainties when it comes to the potential new rounds of monetary stimulus. The central bank of the US is going through several rounds of meetings in the coming days and likely weeks, all with the purpose of trying to figure out what to do next. It is in a tough position, as the economy in the States is presently not on a great footing. The optimism and even jubilation during the summer months have been replaced with a sense of worry and possible further problems to come, all related to the ongoing coronavirus pandemic. 

In the US, the number of new infections seems to be stagnating on a high level, at least, but the number of deaths is climbing steadily. Right now, those are well over 1,000 fatalities per day, while the overall death toll is coming close to 700,000. So, the FED has to figure out what to do mainly using projections on how the fall and winter seasons will look like, which is nearly impossible for anyone. Still, the investors are watching nervously where their decisions might fall in the coming period, which also brought a dose of jitters in the crypto markets as well. Like it usually happens in the world of esports, social media, and all other modern market forces, jitters, and fear mean incoming loss of value. So, in this case, as well, these ended up becoming a clear and strong downward pressure on the market capitalization and token price. 

China FUD

In this crash, which appears to be more of a trend than a quick dip in market prices, China remains a big factor. This time around, the Evergrande Group narrative also got supplemented by the well-known China FUD phenomena. This term represents the idea of fear, uncertainty, and doubt that is so closely associated with the drops in market price and market capitalization. Again, China declared cryptocurrency transactions illegal and the PBoC demanded that all participants in the crypto market stop their activity. 

For veteran traders and investors, this news produced only yawns as most have seen these developments come time and time again. Even the term China FUD is a regular visitor to the social media circles of cryptocurrency traders, cropping up time and time again in that context. Yet, like clockwork, the same occurrence always pulls down the price as many new investors panic and quickly begin to offload their assets, expecting a further drop in value. But, as time goes by, more and more are getting familiar with this process and now are choosing to weather out the storm. 

Worldwide Asset

While there is nothing brand new in the latest crash, it does carry some important lessons for the new traders and investors, especially those based in the US. The cryptocurrency market, especially the BTC token, is located in a truly global space, where events – and even only perceived ones – quickly create ripple effects that reverberate through the entire volume. As a worldwide asset, it can swing wildly and will in fact continue to behave that way in any case. But, at the same time, it is no safe haven from the traditional market influences that ebb and flow in these domains. Because of that, the whole array of influences has to be something that the investors and traders continue to have on their radars.