The two largest cryptocurrencies by market capitalization, Bitcoin (BTC) and Ether (ETH), have experienced a sharp decline in their prices on Wednesday, October 13, 2023. Bitcoin fell below $26,500 for the first time since July 2023, while Ether dropped to its lowest level since March 2023.
What Triggered the Crypto Crash?
The crypto market sell-off was triggered by a combination of factors, including:
- Rising US inflation and interest rates expectations: The latest data from the US Bureau of Labor Statistics showed that the consumer price index (CPI) rose by 5.4% year-over-year in September 2023, matching the highest level since 2008. This has increased the speculation that the Federal Reserve may taper its bond-buying program and raise interest rates sooner than expected to curb inflation. Higher interest rates tend to reduce the demand for riskier assets such as cryptocurrencies.
- Geopolitical tensions in the Middle East: The ongoing conflict between Israel and Hamas has escalated in recent days, with both sides launching airstrikes and rockets at each other. The violence has raised concerns about the stability of the region and the potential impact on the global oil supply and economy. Oil prices surged to a seven-year high of $85.95 per barrel on Wednesday, adding to the inflationary pressures. Cryptocurrencies are often seen as a hedge against geopolitical risks, but they also tend to suffer from increased volatility and uncertainty.
- Technical factors and liquidations: Bitcoin and Ether faced strong resistance at their key psychological levels of $30,000 and $2,000 respectively. As they failed to break above these levels, they triggered a wave of selling pressure and stop-loss orders. According to data from Bybt, more than $100 million worth of crypto futures contracts were liquidated in the past 24 hours, with Bitcoin accounting for more than half of them. Liquidations occur when traders who use leverage to amplify their returns are forced to close their positions when the market moves against them.
How Did Bitcoin and Ether React?
Bitcoin and Ether both plunged by more than 10% in a matter of hours on Wednesday, reaching their lowest levels since July 2023 and March 2023 respectively. According to CoinDesk, Bitcoin hit an intraday low of $26,447.97 at 10:04 UTC, while Ether touched $1,551.77 at 10:24 UTC. Both cryptocurrencies have recovered slightly since then, but they are still trading well below their recent highs.
At the time of writing (11:54 UTC), Bitcoin is trading at $26,836.53, down 4.30% in the past 24 hours and 60.99% below its all-time high of $68,789.63 reached in April 2023. Ether is trading at $1,584.40, down 0.77% in the past 24 hours and 67.84% below its all-time high of $4,948.32 reached in May 2023.
What Does This Mean for the Crypto Market?
The crypto market sell-off has affected not only Bitcoin and Ether, but also other major cryptocurrencies such as Binance Coin (BNB), XRP, Cardano (ADA), Polkadot (DOT), Solana (SOL), and Dogecoin (DOGE). According to CoinMarketCap, the total market capitalization of all cryptocurrencies has declined by 1.76% to around $1.06 trillion in the past 24 hours.
The crypto market sentiment has also turned bearish, as measured by the Crypto Fear & Greed Index. The index dropped to 27 out of 100 on Wednesday, indicating a state of fear among investors. A week ago, the index was at 50, indicating a neutral sentiment.
However, some crypto experts and enthusiasts remain optimistic about the long-term prospects of Bitcoin and Ether, citing various fundamental factors such as:
- The growing adoption of cryptocurrencies by institutional investors and mainstream companies: Despite the recent price correction, Bitcoin and Ether have seen increased adoption by institutional investors such as hedge funds, pension funds, endowments, and corporations. For instance, MicroStrategy, a business intelligence firm, has accumulated more than 114,000 bitcoins worth over $3 billion as part of its treasury strategy. Similarly, Ethereum has attracted many institutional investors who are interested in its decentralized applications (DApps) and smart contracts platforms.
- The innovation and development of the crypto ecosystem: Bitcoin and Ether are constantly evolving and improving their technologies and features to meet the needs and expectations of their users and developers. For example, Bitcoin is undergoing a major upgrade called Taproot, which is expected to enhance its privacy, scalability, and security. Meanwhile, Ethereum is transitioning from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) one, which is expected to reduce its energy consumption, increase its throughput, and enable new functionalities such as sharding and rollups.
- The scarcity and deflationary nature of cryptocurrencies: Bitcoin and Ether have limited supplies that are determined by their protocols. Bitcoin has a fixed supply of 21 million coins, of which more than 19.5 million have already been mined. Ether has a variable supply that depends on the network activity and fees, but it also has a mechanism called EIP-1559 that burns a portion of the fees with every transaction, creating a deflationary pressure. Both cryptocurrencies also have periodic events called halvings that reduce the rate of new coins being issued, creating a supply shock that tends to boost their prices.
Conclusion
Bitcoin and Ether prices have plunged to multi-month lows amid a market sell-off triggered by various factors such as rising US inflation and interest rates expectations, geopolitical tensions in the Middle East, and technical factors and liquidations. The crypto market sentiment has turned bearish, as investors fear further losses. However, some crypto experts and enthusiasts remain optimistic about the long-term prospects of Bitcoin and Ether, citing their growing adoption, innovation, and scarcity.
