Key Points
- Bitcoin and Ethereum experience extreme price swings as market volatility increases.
- Analysts suggest multiple factors, including institutional and retail investor behavior, are driving this instability.
Bitcoin experienced a significant drop in value, losing $6,000 within a few hours and falling below the $83K mark. This decrease was part of a larger market sell-off.
Ethereum also saw a dramatic decline, with its value decreasing by nearly 15%. This was driven by a combination of massive liquidations and concerns over an ongoing trade war.
The Impact of Political Decisions on Crypto
The initial victory of President Donald Trump was a catalyst for strong bullish momentum within the crypto market. However, the landscape has since changed, with increased volatility affecting digital assets.
Major cryptocurrencies such as Bitcoin and Ethereum have seen extreme price fluctuations. The occurrence of flash crashes, which result in significant losses in market value, has increased.
These rapid declines have become more frequent since January, causing concern among investors. Trump’s recent threat of new tariffs on the EU has further impacted the global crypto market cap, which stood at $2.86T after a 1.88% decrease.
Reasons for Market Instability
Analysts suggest that the current market instability is due to several factors. According to a recent post by the Kobelsi Letter, the increase in flash crashes reflects the growing unpredictability of the crypto sector.
Flash crashes often occur without any significant bearish news, leaving investors searching for answers. Bitcoin’s sharp drop on February 26th caused extreme fear and pushed market sentiment to a five-month low.
Meanwhile, Ethereum experienced even larger losses. In the past week, it crashed by 15% and by about 5% in the past 24 hours. This was due to massive liquidations and increasing trade war concerns.
Institutional and Retail Investors’ Role
The Kobeissi Letter identified a growing gap between institutional and retail investors as a key factor behind recent flash crashes. Institutional players, particularly Wall Street hedge funds, have significantly increased their short positions on Ethereum.
In just one week, short positioning on Ethereum increased by over 40%, contributing to its sharp decline since December. On the other hand, institutions continue to accumulate Bitcoin, while retail investors are causing extreme volatility in smaller altcoins like Solana.
Despite the recent volatility, market sentiment towards crypto seems to be shifting towards cautious optimism. Andre Dragosch, European Head of Research at Bitwise, pointed to the Cryptoasset Sentiment Index as a strong contrarian buy opportunity for Bitcoin.
However, not all experts agree with this perspective. Standard Chartered has warned that Bitcoin may experience further decreases before regaining its bullish momentum. As Bitcoin hovered around $86,745.68, down 2.67% in the past 24 hours, investors remain divided on whether the market has hit rock bottom.