The crypto market experienced a sharp sell-off on Monday, as Bitcoin dropped to its lowest level since October 2023, dragging down other gaming tokens with it. The plunge was triggered by a combination of factors, including rising geopolitical tensions, fears of tighter monetary policy, and a leverage wipe-out.
Bitcoin, the largest and most influential cryptocurrency, fell as much as 3.4% on Monday, reaching a low of $40,352 – just below its previous low of 2024, recorded on Friday. The drop erased most of the gains made since October 2023, when Bitcoin surged from $27,000 to nearly $45,000 in two months, hitting a new all-time high of $44,899 on December 8.
The rally was driven by a number of positive developments, such as the launch of the first Bitcoin futures exchange-traded fund (ETF) in the U.S., the adoption of Bitcoin as legal tender in El Salvador, and the growing interest from institutional and retail investors. However, the momentum faded as Bitcoin faced several headwinds, such as regulatory uncertainty, environmental concerns, and technical resistance.
Gaming Tokens Suffer Heavy Losses
The decline in Bitcoin also affected other crypto assets, especially gaming tokens, which are designed to facilitate transactions and rewards in online gaming platforms. Gaming tokens have been one of the best-performing sectors in the crypto space, as they benefited from the rising popularity of play-to-earn games, such as Axie Infinity, CryptoBlades, and Splinterlands.
However, gaming tokens also tend to be more volatile and sensitive to market movements, as they are often traded with high leverage and speculation. As Bitcoin dipped below $40K, many gaming tokens saw double-digit losses, wiping out billions of dollars in market value. Some of the worst-hit gaming tokens include:
- Sandbox (SAND), which fell 14.5% to $4.32
- Decentraland (MANA), which dropped 13.2% to $3.41
- Gala (GALA), which plunged 12.8% to $0.48
- Axie Infinity (AXS), which slid 11.9% to $104.51
- Enjin Coin (ENJ), which tumbled 10.7% to $2.42
What Caused the Crypto Crash?
The crypto crash was triggered by a confluence of factors, both external and internal, that created a perfect storm for the market. Some of the main causes include:
- Geopolitical risks: The escalating tensions between Russia and Ukraine, as well as the diplomatic boycott of the Beijing Winter Olympics by several Western countries, have increased the uncertainty and risk aversion in the global markets, leading to a flight to safety and a sell-off of risky assets, such as crypto.
- Monetary policy fears: The expectations of faster and more aggressive tightening of monetary policy by the Federal Reserve and other central banks, in response to rising inflation and economic recovery, have also weighed on the crypto market, as higher interest rates and bond yields reduce the appeal of alternative assets, such as crypto.
- Leverage flush: The sharp drop in Bitcoin and other crypto assets triggered a cascade of liquidations of leveraged positions, as traders were forced to sell their holdings to cover their margin calls. According to data from Bybt, a crypto derivatives tracker, more than $1.5 billion worth of crypto futures contracts were liquidated in the past 24 hours, adding more selling pressure to the market.
Is This the End of the Crypto Bull Market?
Despite the steep correction, many crypto experts and analysts remain optimistic about the long-term prospects of the crypto market, and view the current pullback as a healthy and necessary reset that will pave the way for a more sustainable and robust rally.
“Corrections shake out ‘weak hands’ and leverage, allowing for a stronger foundation for eventual moves higher,” said well-followed analyst Will Clemente. He also pointed out that the on-chain fundamentals of Bitcoin, such as the accumulation of long-term holders, the decline of exchange balances, and the increase of network activity, remain bullish and indicate a strong demand and adoption of the cryptocurrency.
Similarly, LMAX market strategists said that the crypto market may bounce back and rally to new highs by the end of the year, as the correction flushed out excess leverage and reset the market. They also noted that the macroeconomic environment, such as the ongoing inflation, the debasement of fiat currencies, and the innovation of the crypto industry, will continue to support the growth and adoption of crypto assets in the long run.