On the release date, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publishing Guidelines.
Why Did Crypto Crash This Week?
It’s been a busy week for crypto and it’s only Tuesday. The industry shake-up that followed May’s crypto crash has some unprecedented effects. Even on one of the most eventful days of the year, Binance (BNB-USD) cannot keep the winnings. But why did crypto crash this week? Most of the downward momentum comes from FTXs liquidity drama, but factors such as Bitcoins (BTC-USD) refuse to add to the fire.
The global crypto market cap is back below $900 million for the first time in weeks. Almost all major cryptocurrencies are trading in the red. What gives?
Well, a lot has to do with Bitcoin’s price volatility. The world’s #1 crypto has fallen to its lowest price of the year today at just $17,600. Ethereum (ETH-USD), meanwhile, continues to fall back to around $1,300, a price floor it had maintained through much of late September and October.
Some analysts point out that the declines come on an important election day in the US and they come just two days before the next consumer price index report. In fact, the market has been shown to fall as inflation affects spending. Many predict that the CPI report from October will once again show higher inflation figures than expected.
Since Bitcoin acts as a clock for the crypto industry, it would make sense that many cryptocurrencies move down in time. However, there is an important news thread this week that drastically reinforces the bearish momentum plaguing the market. FTX’s rapid fall and the revelations surrounding the company’s liquidity crisis have caused fears of another Terra (LUNA-USD)-like situations.
Why did crypto crash? FTX Meltdown Drives Crypto into the Red.
FTX is preparing to sell itself to rival Binance. The Sam Bankman-Fried-led exchange built itself up as infallible, surviving earlier drama in 2022. After carrying out several major acquisitions and bailouts, the company appeared completely unaffected by the market crash in May.
And yet the last few days suggest that this was an illusion. Rather, FTX was secretly mired in a liquidity crisis that only revealed itself after CoinDesk reported that the sister company Alameda Research counted about 6 billion dollars of FTX tokens (FTT-USD) among its $14.6 billion in assets.
When competitor exchange Binance started selling its FTT stake, the price of the token dropped significantly and FTX stopped all withdrawals from the platform.
Binance ends up on top. On Tuesday, investors learned that it had signed a letter of intent to buy its longtime rival.
The news caused the BNB crypto to rise immediately. However, like all other cryptos today, it is back in the red. This may be due to consumer sentiments. FTX was one of the largest and most trusted crypto exchanges in the world. And yet it apparently melted down behind the scenes. The investors are now left to reassess the market again.
