Crypto Market Crashes After El Salvador Legalizes Bitcoin
Bitcoin and ether fell again on Wednesday before regaining some ground after plummeting the day before during El Salvador’s rocky bitcoin rollout, wiping out more than $360 billion from the highly leveraged crypto market in just two days.
According to Bloomberg data, Bitcoin fell as much as 5% on Wednesday before paring losses. It was 1% lower at $9.50 a.m. ET, trading at $46,347, after an 11% drop in the previous two days.
Ether, the second-largest cryptocurrency by market capitalization, fell as much as 5% before recovering somewhat. According to Bloomberg data, it was 0.6 percent lower at $3,390 early Wednesday, bringing its two-day drop to 14 percent.
On Tuesday, cryptocurrency prices plummeted after El Salvador made bitcoin legal tender, ushering in a watershed moment for the world’s largest cryptocurrency. The rollout was plagued by bugs, forcing the small Central American country’s Chivo wallet to be taken offline.
“Bitcoin is down on a ‘buy before the big event, sell after the fact’ reaction to El Salvador’s historic embrace of bitcoin,” said Edward Moya, senior market analyst at trading platform Oanda.
Severe Crypto Crash Due to Leverage
Bobby Ong, CEO of crypto data firm CoinGecko, agreed with Moya’s analysis and stated that the price drops were so severe due to the effects of leverage in crypto markets.
Many of the world’s largest cryptocurrency exchanges, such as Binance, allow users to borrow large sums of money to bet on the markets. However, when prices fall, investors are frequently forced to sell out of their positions, or exchanges liquidate them automatically to limit losses.
“Heavy selling on derivatives platforms… caused a cascade of auto-liquidations, like a line of dominoes,” said Matt Blom, head of sales trading at Nasdaq-listed crypto firm Eqonex. “In less than 20 minutes, over $2 billion in long positions were liquidated.”
Problems on major cryptocurrency exchanges Coinbase, Kraken, and Gemini exacerbated the situation, causing transactions to be delayed or canceled.
According to Coinbase, the problems were caused by a “sudden increase in network traffic and market activity,” which resulted in a “degradation in our services.”
Altcoins like Cardano, binance coin, XRP, and dogecoin were also suffering heavy losses after plummeting sharply on Tuesday and Wednesday. The Bloomberg Galaxy Crypto Index, which tracks a variety of cryptocurrency tokens, was down 0.7 percent on Wednesday and had lost 11.5 percent in the previous two days.
On Wednesday, the total market value of all cryptocurrencies stood at $2.01 trillion, more than $360 billion lower than its Tuesday peak.
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