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Earlier this week, Bitcoin and the broader cryptocurrency market experienced a “flash crash,” marking the largest three-day sell-off in the past 12 months. Bitcoin (BTC) dropped 14% in 24 hours, and Ethereum (ETH) fell as much as 20% in less than an hour.
Both have somewhat recovered, though they’re currently trading lower than a week ago.
What contributed to this? Unlike previous market crashes, this flash crash doesn’t appear to be triggered by a single event. Instead, it was likely a combination of factors.
Global economic uncertainties
The global economy experienced hysteria on Monday, led by Japan’s stock market, which had its largest drop since 1987.
This was likely caused by the recent spike in interest rates on the Japanese Yen, striking fear into carry traders looking to borrow Yen for higher yields elsewhere. The hysteria seemed to be overblown as the Nikkei 225, recovered almost all of its losses the very next day – however we will need more time to understand if there is more turmoil to come into next week.
We have also seen rising tensions in the Middle East conflict, which is undoubtedly stoking fears of escalations.
Did You know?
Only 7 altcoins (alternative cryptocurrencies to Bitcoin) in the top 50, have outperformed BTC since the start of 2024. They are:
- Solana (SOL)
- Binance Coin (BNB)
- Toncoin (TON)
- Unus Sed Leo (LEO)
- Kaspa (KAS)
- Pepe (PEPE)
- Dogwifhat (WIF)
Source – CryptoRank
US Presidential race
The tightening of the U.S. presidential election race has introduced new uncertainty into the market. Polls show Kamala Harris on a level playing field with Donald Trump.
The Democratic Presidential nominee has appointed an ex-Binance adviser to her team and there are credible reports that she is seeking closer ties to the industry. But she has not yet publicly expressed an opinion on cryptocurrency. Meanwhile, Trump has suggested he will make Bitcoin a “strategic reserve” and promised to fire the head of the US Securities and Exchange Commission if he is elected (a promise he would not have the power to keep).
Either way, the apparent willingness of both candidates to have a relationship with the industry does appear to have reduced the amount of jeopardy around the election.
Bitcoin’s Big Year in 2024
Despite recent market turmoil, 2024 has been a landmark year for Bitcoin. The approval and launch of Bitcoin spot ETFs in the United States was monumental. Especially given the strict stance of US regulators on the crypto market. This provided a traditional investment vehicle for institutional investors. The launch did not disappoint, shattering several records, including the biggest ETF launch in history, solidifying a strong institutional appetite for the world’s first and biggest cryptocurrency.
The success of the ETFs contributed to Bitcoin’s strong start to the year, with a yearly high return of +69% since January 1st (source: CoinMarketCap), outperforming most other asset classes like the S&P 500, NASDAQ, gold, and oil.
In April, Bitcoin went through its fourth halving, a process that reduces the creation of new Bitcoin by 50%. This has historically had a profound impact on the price of Bitcoin as it reduces its inflation rate.
Bitcoin price after every halving. Source Glassnode.
Interestingly, crypto, and Bitcoin in particular, has been a focal point in this year’s US presidential race. Under the Biden administration, crypto wasn’t viewed favorably, with regulators unleashing several lawsuits against American-based crypto companies. Trump seized on this issue to gain support, even accepting crypto as donations.
Since Biden pulled out of the presidential race, likely replacement and current Vice President Kamala Harris has made strides to take a friendlier approach to the crypto industry. She has engaged with industry representatives from Coinbase, Ripple, and Circle and democratic supports recently launched the “Crypto for Harris” campaign to counter Trump’s industry appeal.
Though Trump has a strong head start in attracting crypto voters, Harris appears to be softening the Democrat’s position on crypto.
Where to Next for Bitcoin?
Recent volatility earlier in the week may have done enough to spook investors for some time but from a fundamental point of view, Bitcoin adoption has never been stronger.
With increasing investment from the retail and institutional market, and growing adoption by federal and state governments worldwide, Bitcoin continues to go from strength to strength.
However, explosive growth like we’ve seen in the past will likely depend on a strengthening economy. “Risk on” assets like Bitcoin and cryptocurrencies benefit from easing monetary policies, often when interest rates are low, and people are spending more freely.
Economic forecasts suggest that interest rate reductions in the US may occur as early as next month. Lower interest rates can stimulate economic activity and investment, potentially providing a favorable environment for Bitcoin’s growth.
While Bitcoin faces short-term challenges due to global economic and political uncertainties, its long-term outlook remains positive. Increased adoption, regulatory advancements, and its growing role as a mainstream investment asset bode well for its future.
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