The latest flash crash in the world of crypto has left a lot of investors shaken. Extreme volatility is the standard with digital assets, but big drops still take their toll.
During the downswing, it looks like traders were moving out of Bitcoin and putting their money elsewhere instead. Read on to find out where this money was flowing into, and what these movements signal about the cryptocurrency market right now.
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Why did the crypto market and Bitcoin crash?
As always, there were a number of factors at play that led to the recent flash crash. But it appears the bulk of the downward pressure was due to wider economic fears and a stock market dip.
However, these big crypto corrections still come as a shock for many investors and traders in the space because they happen so quickly and with little warning.
There’s no slow build-up; it’s more like a match being held to petrol. One second it’s fine, and then – whoosh! – 20% of the whole market value goes up in flames.
What assets did crypto traders move their money into?
When these scary moments happen, it’s natural for some investors to try and make the best of the situation. Perhaps by stemming their losses or looking for gains elsewhere. This is especially true for traders who are more than happy to move in and out of assets at a rapid pace.
Why did cryptocurrency make this move?
According to data from the European crypto platform Currency.com, trading volumes in BTC/USD have dropped by 90% since Friday 3 December. And over the same period, the number of traders in BTC/USD fell by more than 48%.
You might think these alternate choices are a bit of a strange move. Gold makes some sense as a commodity hedge against riskier investments. But why Ethereum? If the whole digital asset market is heading downwards, why move from one crypto to another?
Steve Gregory, US CEO at Currency.com explains the growing interest in Ethereum instead of Bitcoin: “It’s interesting to note how ETH has managed to hold its value relative to BTC in the sell-off.
“One reason why ETH has not sold-off as dramatically could be because of the value investors assign to ETH. It is more useful and many cryptocurrency applications are built on the ETH network, such as DeFi and the Metaverse.”
What could be in store for crypto markets?
There’s a lot of tech development happening in the cryptocurrency space at the moment. On top of this, NFTs continue to be a popular pick, and the DeFi (decentralised finance) ecosystem is also expanding.
However, market valuations may not necessarily reflect these advancements. In most cases, this technology is still in its infancy. So the bulk of the money floating around is highly speculative.
At least in the short term, cryptos are going to be greatly affected by what happens in the stock market. To get a sense of where digital assets will be moving, it makes sense to keep a keener eye on shares and the wider economy than the erratic movements of any single cryptocurrency.
Investing in Cryptocurrency is extremely high risk and complex. The Motley Fool has provided this article for the sole purpose of education and not to help you decide whether or not to invest in Cryptocurrency. Should you decide to invest in Cryptocurrency or in any other investment, you should always obtain appropriate financial advice and only invest what you can afford to lose.