Bitcoin price crash: Why is cryptocurrency market collapsing?

‘Volatility isn’t new and is to be expected in such a young market,’ analyst says

The price of bitcoin has fallen by 20 per cent in just over 24 hours, having briefly hit a new all-time high above $58,000 on Sunday.

Market analysts have called the cryptocurrency’s collapse a “price correction”, though the reason for such a massive adjustment is not immediately clear.

Wild price swings are a familiar issue for bitcoin and other cryptocurrencies, often exacerbated by the influx of large amounts of capital into such a nascent market.

Other major cryptocurrencies experienced significant losses, including Ethereum (ether), Ripple (XRP), litecoin, bitcoin cash and dogecoin.

In total, more than $400 billion was wiped from the combined market capitalisations of all cryptocurrencies, in what has been the biggest loss of value in the market’s history.

In terms of percentage losses, bitcoin has seen worse crashes – most notably in the days following the great crypto bull run of 2017, when its price fell from close to $20,000 to below $10,000.

Bitcoin’s latest losses have been compounded by day traders, with more than $2.3 billion worth of bitcoin derivative contracts liquidated by cryptocurrency exchanges over the last 24 hours, according to market tracking site Bybt.

The further the price falls, the more stop-loss trades are potentially triggered, meaning bitcoin is automatically sold if it falls below a certain level.

The price slide could also attract fresh interest from investors who were waiting for the market to cool down in order to buy in, with some analysts predicting that bitcoin’s price could rise above $100,000 in 2021 in a repeat of the pattern it experienced in its previous major price rallies in 2013 and 2017.

Despite the latest dip, bitcoin’s price is still up by around 500 per cent compared to this time last year. The market has been boosted by institutional investors entering the fray, as well as renewed interest from retail investors.

Major investments from firms like Tesla have also added to bitcoin’s emerging reputation as a form of digital gold, which has seen it increasingly viewed as a store of value thanks to its fixed supply.

“Today’s price movement may galvanise bitcoin’s many critics, including those who recently dismissed the leading cryptocurrency as an economic sideshow,” Paolo Ardoino, chief technology officer at leading cryptocurrency exchange Bitfinex, told The Independent.

“Such criticism misses the point and the profound impact it is starting to have. For many of the battle-tested exchanges that have weathered the market fluctuations, volatility isn’t new and is to be expected in such a young market.

“For many in the industry, development and deployment is priority. Price movements are more of a sideshow.”