Cryptocurrency prices plunge as investors sell off risky assets

The cryptocurrency market experienced a significant downturn, resulting in a loss of approximately $367 billion in value over a 24-hour period.

The crypto market’s sharp decline

The sharp decline in cryptocurrency prices was largely due to significant drops in bitcoin and ether, the two leading cryptocurrencies. The recent crypto market downturn will impact a wider range of investors, especially following the SEC's approval of new spot exchange-traded funds (ETFs) for bitcoin and ether earlier this year. These ETFs have attracted hundreds of millions of dollars in investments into the cryptocurrencies.

This downturn in the crypto market aligned with a broader decline in equities across Asia-Pacific markets and marked the Nasdaq's worst three-week performance in two years, according to the report. Bitcoin’s price has hit its lowest point since February, briefly dropping below the $50,000 mark to $49,111.10. Currently, the world’s largest cryptocurrency is trading just under $51,000, but it remains up nearly 17% for the year.

Ether, the native token of the Ethereum blockchain, fell to approximately $2,200, erasing its gains for the year. Binance’s BNB token has decreased by 20%, while Solana is trading 22% lower.

Investors' sell-off of risky assets was a key driver behind the crypto market's steep decline. Bitcoin, the largest cryptocurrency, fell by 15% within 24 hours, hitting its lowest point since February. Ether, the native token of the Ethereum blockchain, dropped by 22%, wiping out its gains for the year. Also, investors are keeping an eye on upcoming trade data from China and Taiwan this week, as well as central bank decisions in India and Australia.

Other cryptocurrencies, including Binance’s BNB token and Solana, also saw substantial losses, with their prices falling by 20% and 22%, respectively, according to the report.

Factors contributed to the recent crypto market plunge

According to the report, several factors have contributed to the recent plunge in the crypto market.
1. The broader decline in equities across Asia-Pacific markets has negatively affected investor sentiment. Japan’s Nikkei 225 fell more than 12%, extending previous losses, following the Bank of Japan's decision to raise its benchmark interest rate to a 16-year high.

2. The Nasdaq, known for its tech-heavy composition, faced its worst three-week stretch since September 2022, further eroding market confidence.

3. The report also highlights that disappointing earnings reports, a weaker-than-expected jobs report, rising unemployment, and a declining manufacturing sector in the U.S. have impacted stock prices.

4. The U.S. Federal Reserve’s choice to keep its benchmark rate unchanged and refrain from signaling a potential rate cut in September has influenced market expectations. Typically, lower interest rates are seen as beneficial for risky assets like cryptocurrencies.

The continued fragility of equity markets, coupled with minimal de-risking in the CME Bitcoin futures market, indicates the need for ongoing vigilance. Consequently, analysts advise maintaining a cautious stance on the crypto market for the foreseeable future.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spreadbets is restricted for all UK retail clients