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The Market Dip: 5 Reasons Why By DailyCoin

The Market Dip: 5 Reasons Why
  • The crypto market recorded its biggest dip of the year, sending the prices of to a low last recorded in February
  • The downtrend which started after Tesla (NASDAQ:) announced that it won’t be accepting Bitcoin as a means of Payment grew worse after China announced that cryptos have been barred
  • The resulting dip set the crypto market back more than 10% of its cumulative value as Bitcoin slumped to near $30,000
  • Amidst the dip, the fear in the crypto market grew to a level last recorded in April 2020

The market dip which started over the weekend cast a lot of doubt over the mind of investors as the price of Bitcoin sank heavily, reaching a low last recorded in February. Fears grew worse as cryptocurrency exchanges in India like WazirX were unable to manage the high trading volumes.

On Wednesday, things grew worse as leading crypto assets including Bitcoin, , Binance Coin, and Dogecoin nosedived. Bitcoin neared $30,000, as the overall crypto market lost about 10% of its value. In general, the sea was read for crypto traders and investors. So, what was the cause of the biggest market dip in recent times?

1. Tesla Says No

The market dip began in earnest last week when Tesla’s CEO Elon Musk announced that the electric carmaker won’t be accepting Bitcoin as payment, contradicting their earlier announcement. The company had also earlier bought Bitcoin worth $1.5 billion.

In 2021, Elon Musk and his electric car company have been huge contributors to the growth of Bitcoin and other cryptos, especially Dogecoin. Coming from a leading crypto figure, the news was devastating, sending Bitcoin and Ethereum spiralling downwards.

2. China’s Announcement

One of the major causes of the crypto market dip was fuelled by the People’s Republic of China. On Tuesday, China announced that financial institutions and payment companies have been barred from providing any services related to cryptocurrency transactions.

In 2017, China shut down its local cryptocurrency exchanges at a time when the country accounted for approximately 90% of all Bitcoin transactions. Although not the news that sparked the drop, it added more fuel to an already raging fire.

3. Grayscale Discount Widens Even Further

Grayscale, another major player in the crypto market may have been indirectly involved in the dip. “Grayscale Discount” represents the difference between the price of Bitcoin, as implied by the trading level of Grayscale Bitcoin Trust shares, and the spot-market price.

In addition to the news that sparked the downtrend, the Grayscale Discount fell to a record low of 25%. The widened discount posed and still poses a short-term risk for Bitcoin according to Arcane.

On the Flipside

  • The crypto market is beginning to see the light as major cryptos are beginning to post gains
  • Bitcoin now trades around $40k, while Ethereum trades near $2,7000 and Binance Coin at $373
  • While the market recovery may be slow, the industry will survive the dip, and may have opened a great opportunity for investors to buy assets

4. Fear

Fear and greed; two of the greatest enemies of the market. As the market plunged with the growing uncertainty from China’s announcement, the fear among investors grew unquantifiable. According to the Crypto Fear and Greed Index, on Tuesday, the market sentiment fell to an “extreme fear” level last seen in April 2020.

5. Negative Press

Amidst the market slump, press around cryptocurrencies did little to relieve tensions in the market. With investors and traders already in fear, negative press worsened the situation. More than most markets, the crypto market is hugely affected by the news.

The fear and the resulting doubt caused investors to sell more, causing the crypto market to spiral even lower. In all, Arcane analysts wrote that “an extremely fearful market like this has historically presented solid buying opportunities during bull cycles.”

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