Why Did The Crypto Market Crash Last Weekend?

Crypto investors have had a grim weekend. While the price of Bitcoin fell by nearly 20%, the collective market capitalisation of all crypto assets dropped to $2 trillion after a $400 billion worth of sell-off on the weekend.

The crypto market was equally hard on popular altcoins like Ether, Cardano, Solana, and Polygon, which tanked by nearly 10-20%. However, most coins, including Bitcoin, recovered partially within a day or two.

Meanwhile, analysts termed the weekend as “profit-booking” time as the market crash followed a recent high in crypto prices. Nevertheless, it is interesting to understand what caused the abrupt decline in value.

What Caused The Market Tumble?

The sell-off and the subsequent price fall were triggered by several factors working in tandem.

The risk-off sentiment currently gripping the global markets can best explain the scenario, including stocks and crypto-assets.

OMICRON, FED TAPERING, HOLIDAYS

The emergence of Omicron, the new COVID-19 variant, and the uncertainty surrounding its severity have dampened investors’ spirits.

Coupled with the pandemic scare, central banks’ tightening of monetary policy due to spiking inflation has put off investment sentiments across the board.

The hawkish stance adopted by Jerome Powell, the US Fed Reserve Chairman, was immediately met with tumbling stock prices. Global stocks were down by over 4% from November owing to negative sentiments. The crypto market has followed suit and is no more an island unaffected by the broader financial market trends.

Besides, the holiday season has set in a pre-Christmas risk-off sentiment where all speculative activities, including stocks and crypto, have taken a hit. Investors have meanwhile turned to low-risk assets until more clarity emerges.

For a Brighter 2022: The Dippity Dip

However, many experts and long-term investors considered the momentary slump as an opportunity to buy the dips. The same was evident as exchanges were buzzing with some activity. And despite the lull, coins like Polygon (MATIC) saw impressive strides upwards.

“Long term investors should be buying on these long liquidation cascades which are essentially forced and non-organic selling,” noted Ishan Arora, partner at Tykhe Block Ventures to The Economic Times.