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Analyzing the Recent Flash Crypto Crash

The cryptocurrency market experienced a significant downturn on April 12, 2024, coinciding with the opening of the stock market. Bitcoin (BTC) saw a considerable drop in value, plummeting by more than $4,000 to $66,440. Similarly, Ethereum witnessed a decline of 9% during the same period, reaching $3,216, while Dogecoin experienced a sharp decline of 14.2%.

The downward trend began early in the day but intensified around noon, with minor decreases escalating into double-digit declines across several cryptos. Although no major developments were reported in the crypto sphere on that day, such volatility often occurs toward the weekend, as was the case this time.

The past week presented few positive developments for cryptocurrencies. Higher-than-anticipated inflation figures released earlier led to an uptick in interest rates and a downturn in growth and technology stocks, which historically have correlated with declining cryptocurrency values. However, it took some time for the market to digest this news.

Additionally, Uniswap received a Wells notice from the U.S. Securities and Exchange Commission (SEC) indicating potential legal action against the crypto. Regulatory ambiguity has been a persistent issue, with investors seeking clarity on legal boundaries. The SEC’s track record of pursuing legal action against prominent players such as Coinbase and XRP further compounds the uncertainty surrounding the outcomes of such actions.

It’s not unexpected that some investors choose to cash in their profits during a peak, given the uncertainty surrounding crypto regulations and the potential for legal action.

Once a crash commences, it can be exacerbated by leverage within the cryptocurrency market. Traders often hold leveraged positions, and liquidity tends to decrease over weekends, potentially exacerbating the situation on Fridays.

According to data from Coinglass.com, long positions worth $668 million were liquidated within a few hours on Friday alone. While liquidations are not uncommon, such a significant volume within a few hours is unusual. What distinguishes this downturn is its widespread impact. Not only are major cryptocurrencies such as Dogecoin, Bitcoin and Ethereum affected, but smaller tokens are also experiencing steep declines.

Although volatility is inherent to the cryptocurrency market, the magnitude of this decline is notably high, and it remains uncertain what could arrest this trend. In recent months, the market has seen substantial inflows of capital into Bitcoin spot ETFs, driven by speculative activity and amplified by leverage. While this trend has buoyed prices, a reversal could spell trouble for crypto values. As earnings season commences and interest rates rise, investors may seek safer alternatives amid what could be a particularly tumultuous period for the industry.

Industry actors such as Bit Digital Inc. (NASDAQ: BTBT) will be watching how the market responds over the coming weeks and months in light of the evolving macroeconomic realities.

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