On August 5, 2024, the cryptocurrency market experienced a significant downturn, sending shockwaves through all of Web3. Let’s briefly examine the factors behind the dump, its immediate aftermath, potential future scenarios, and some strategies for investors and degens to navigate these turbulent times.
What Happened and Why ?
Crash
Bitcoin's value plummeted by more than 16%, trading as low as $50,000, while Ethereum fell over 20% before a slight recovery. Over $1 Billion were liquidated from future exchanges:
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Several factors contributed to the sudden market crash.
As VirtualBacon mentioned, ‘’This chaos is driven by the unwind of the Japanese Yen carry trade against the US dollar and foreign equities. The Bank of Japan raised interest rates above 0% for the first time since 2008, forcing a massive unwind of leveraged positions. The Japanese Yen has weakened against the US dollar over the past year, leading to inflation. This forced Japan to raise rates, making borrowing costly and triggering the unwinding of the carry trade.”
1/x The financial world has been bleeding as both the stock market and crypto crash.
This chaos is driven by the unwind of the Japanese Yen carry trade against the US dollar and foreign equities.
The Bank of Japan raised interest rates above 0% for the first time since 2008,…
This chaos is driven by the unwind of the Japanese Yen carry trade against the US dollar and foreign equities.
The Bank of Japan raised interest rates above 0% for the first time since 2008,…
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What is a carry trade? As explained by investopedia, A carry trade is a trading strategy that involves borrowing at a low-interest rate and re-investing in a currency or financial product with a higher rate of return.
Unemployment Rate
These recent declines are also attributed to broader economic concerns, geopolitical tensions, and market volatility. The market's reaction was also fueled by disappointing economic data from the U.S., which reported a weaker-than-expected job growth of only 114,000 nonfarm payroll jobs in July, significantly below the forecast of 175,000. Additionally, the U.S. unemployment rate rose to 4.3%, adding to recession fears (Biztech).
Altcoins Bleed
As the whole crypto market fell dramatically, most Altcoins bleed even fruther. The total cryptocurrency market cap fell roughly 20% on August 5 and by 27% since August 1st. As an example, almost all tokens listed on Binance this year are showing negative price action.
Performance of tokens listed on Binance YTD
Since the beginning of 2024, a total of 30 tokens has been listed on Binance
At the current state, most of them are showing decreases in performance to varying degrees
Since the beginning of 2024, a total of 30 tokens has been listed on Binance
At the current state, most of them are showing decreases in performance to varying degrees
What Now ?
The market dump had a ripple effect on the global economy, affecting investor confidence and financial markets. With Fear and Greed index currently in the Red, the future of the crypto market remains uncertain, but several scenarios are possible:
Recovery: The market may stabilize and gradually recover, as seen in previous crashes. It seems the BOJ sent a positive message to avoid any further turmoil.
Bear Market or Recession: If negative sentiment persists, we could enter an extended period of lower prices and reduced activity. Prolonged uncertainty can lead to reduced investor confidence, with many choosing to stay out of the market or invest conservatively. A severe market crash can trigger or exacerbate an economic recession. Reduced consumer and business confidence can lead to lower spending, investment, and employment, further depressing the economy.
According to CoinShares, digital asset investment products saw their first outflow of funds in four weeks, totaling $528 million. CoinShares believes this is a response to the US recession, geopolitical concerns and widespread market liquidation. Bitcoin funds outflowed $400…
Political & Institutional Buys: The price dip could attract more institutional investors snagging discounts. It will also be interesting with elections in November to see how the stance of the candidates will affect the markets In a recent article, Trump sons mentioned to be big fans of the blockchain.
How to Stay Safe ?
For investors and crypto enthusiasts, here are some tips to navigate the current market conditions:
Diversify Your Portfolio: Don't put all your eggs in one basket. Spread investments across different assets and sectors.
Use Reputable Exchanges: Stick to well-established cryptocurrency exchanges. Check our recommended ones here
Stay Informed: Keep up with the latest news and developments in the crypto space from reliable sources like Altfins. As the cryptocurrency market continues to evolve, staying informed and cautious remains crucial for all participants in this dynamic ecosystem.
Consider Dollar-Cost Averaging: Instead of trying to time the market, consider regular, small investments over time. Consider investing a fixed amount regularly regardless of market conditions. This strategy can reduce the impact of market volatility on your portfolio.This is also possible through a DCA Bot.
Gravitate towards Stable Interest: In terms of uncertainty, it might be a good idea to simply earn interest in stablecoins. Beefy finance for example offers several strategies with decent APYs, most of them in the 20% to 30% range.
Disclaimer: This article is for informational purposes only. It is not intended to be investment advice. The crypto market is highly volatile, and investing in crypto projects can be risky. Always do your own research and consult with a financial advisor before making any investment decisions.
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