The cryptocurrency market experienced significant losses in the last few days, with over $500 billion in value wiped out.

Bitcoin fell from $62,000 to $49,000, while Ethereum dropped from $2,900 to $2,111, a 20% and 29% loss respectively.

Among the top 10 largest coins by market cap, Solana was the hardest hit, plummeting 30% in value.

Altcoins suffered severe losses, with most shedding 80% to 90% of their value. What a hell of a week, indeed!

Let’s dive into the possible reasons why the market crashed and what to expect in the future.

What Went Wrong: 5 Reasons Why The Crypto Market Crashed

Here are the reasons, in no particular order:

• Economic Slowdown
• Jump Large Sell-offs
• Japan rate hike
• Stock Market correction
• Trump’s unfavorable odds
• Final Thoughts: What’s Next For BTC, Will it Touch $40K?

(1) Economic Slowdown

A looming fear of recession is one of the catalysts to the recent drastic crypto market decline.

Two primary factors contributed to this fear.

First, disappointing job growth, there were fewer new jobs than expected in July.

The job report released on August 2nd showed only 114,000 positions added in July, compared to the anticipated 175,000.

Secondly, tech giants Amazon and Intel didn’t perform as well as expected in revenue growth.

Intel even further forecast a dismal performance for the third quarter and stopped paying its shareholders a dividend.

These developments collectively raised concerns about the overall health of the U.S. economy and prompted investors to adjust their portfolio.

As you may know, whenever a recession is looming, the crypto market is hit the hardest.

(2) Jump Crypto Large Sell-offs

Another factor that worsened the market was a huge sell-off by Jump Crypto.

This company unstaked millions of dollars worth of Ethereum from its holdings and moved them to major exchanges.

This move sparked rumors that Jump intends to liquidate those funds.

Approximately $410 million worth of ETH was transferred by the firm to exchanges including Binance and Coinbase.

Although the unstaking began in late July, the largest transfers coincided with the recent market crash.

The reasons behind this action is unclear.

While some analysts suggest the firm may be preparing for a perceived market downturn, others believe it is going insolvent.

(3) Japan rate hike

Japan has long had a zero-interest rate policy called “cash and carry trades.”

This allowed investors to borrow at no cost and invest in any areas, including potentially high reward assets like crypto.

However, a recent decline in the value of the Japanese yen prompted the Japan government to change this policy to strengthen its currency.

To this effect, the “cash and carry” monetary policy was updated and now includes an interest rate of 0.25%.

This change increases the cost of borrowing in Japan, causing investors to quickly adjust their positions.

As the old adage goes, the higher the interest rate, the lesser the amount borrowed, while the lesser the interest rate, the higher the amount borrowed.

Consequently, significant sell-offs occurred in the crypto market as investors sold their assets to reduce their debt.

(4) Stock Market correction

The new cash and carry policy didn’t just affect the crypto market, but had contagion effects across the global stock market.

As a major player in global finance, Japan’s unfavorable monetary policy changes have far-reaching consequences.

Following the changes, the JPY/USD pair rallied significantly in the forex market, while the Japanese stock market index, the Nikkei 225, dropped by 15%.

The Nasdaq also experienced a 5% decline, while the Taiwan stock market saw one of its largest historical drops.

Similarly, the Korean and US stock markets also declined, although not as severely as the others.

As you may know, there is a correlation between the crypto and stock markets.

The decline in the stock market triggered a downward spiral in the crypto market as well.

(5) Trump’s unfavorable odds

Hope was raised among the crypto community when Donald Trump, the US candidate for the upcoming election, expressed strong support for crypto.

Trump pledged to remove all barriers to crypto adoption and make the US “the crypto capital of the planet” if elected.

This unprecedented backing from a political figure had crypto enthusiasts dreaming of a $100k BTC.

However, it seems this tiny ripple of hope is about to get smashed as Trump’s odds of winning are declining.

Trump had a better chance against his former opponent, Joe Biden.

Now, Kamala Harris, Joe Biden’s replacement, presents a formidable challenge to Trump.

Based on recent campaigns, Kamala appears to have more support and a better chance of winning.

If she wins, it could mean a return to unfavorable conditions for crypto in the US.

Continue to the next!

Final Thoughts: What’s Next For BTC, Will it Touch $40K?

The market has rebounded since the massive 3 days crash.

BTC is currently trading at $57,000, up by 16%, and ETH at $25,000, an 18 % increase.

This rapid recovery can be attributed to large whale accumulations during the market turbulence.

To date, whales have amassed a staggering $23 billion worth of Bitcoin, indicating a strong confidence in the market among large investors.

Additionally, with the approval of Bitcoin and Ethereum ETFs, many major firms in traditional finance have begun acquiring Bitcoin massively, albeit discreetly.

However, some analysts suggest that Bitcoin might dip to $40,000 for a healthy correction before rallying for a bull run.

Nonetheless, the market appears to be following its usual cycle.

Historically, we’ve seen significant price drops immediately post-halving, only to be followed by substantial rallies.

What do you think about the recent crypto crash? Drop your thoughts in the comment box.

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