Tonight there was a real collapse of the crypto markets. In short, the Coronavirus emergency is not only alarming the traditional markets, but has also hit the crypto currency sector like a boulder.
The day yesterday had not been exciting, with Bitcoin that in a few minutes lost 20% and ended up under $6,000 dollars, and Ethereum close to $120 dollars. At 3:00 a.m. UTC +1 a further collapse brought Bitcoin to $4,000 and Ethereum below $100, a loss for both between 30% and 40% of the day’s value.
Then both found a timid redemption by partially recovering the value.
But what happened in the markets tonight?
For Paolo Rebuffo, crypto market expert and founder of Deepit.ch, as well as creator of the Ethereum Inside chat and one of the first to participate in the ICO of Ethereum, there are at least several reasons that led to the collapse:
“When leveraged financial intermediaries incur a major stock market crash, they first ask clients for extra margins, otherwise they close positions hoping that they will not generate losses. Intermediaries when they have a loss-making position have the right to liquidate other positions to clients until the margins are covered. This generates a collapse on all types of markets. Cryptocurrency is interconnected with financial markets because there are derivatives and ETFs. Many people have liquidated cryptocurrencies and therefore have done so proactively in order to have liquidity to maintain their positions”.
Paolo Rebuffo also analyzes what happened at Ethereum:
“Ethereum had one more problem, with the total blockage of one of its most important assets, which is DeFi. Two things happened: Chainlink, supplier of oracles for all the Defi, went down and then Maker went down, which basically went into fault because a part of the ecosystem managed to close some CDPs taking away the Ether inside”.
According to Rebuffo, the explanation for Maker’s fault is that:
“It was an attack by someone who wanted to attack Maker, so we found that Maker has a vulnerability now mitigated.”
Consequences of the collapse of crypto markets
Also for Simon Peters (eToro) the collapse of cryptocurrency is linked to that of traditional markets, struggling with the Coronavirus emergency:
“The next few days will be crucial for cryptocurrencies and whether or not the sell-off has hit rock bottom. Sentiment could in fact change, with some investors tempted to buy Bitcoins, given the low prices”.
“Yesterday the Bitcoin broke the critical $6,000 level and investors continued to sell – bringing most crypto assets down to their lowest levels for almost a year now. Bitcoin is currently down 12.5%, and is just below $5,000, with other large crypto assets following the trend. Ethereum has dropped by 6% to about $123, XRP by 6.4% to about $0.145 (the lowest level reached in the last 3 years)”.
“This is a knock-on effect generated by the sell-off that has affected traditional markets, while “shelter assets” such as gold have also lost value. Governments around the world are imposing drastic measures to contain the contagion and international authorities are working to find solutions to limit the economic impact of COVID-19″.
Yesterday, the words of ECB President Christine Lagarde, who announced a quantitative easing while leaving interest rates unchanged, triggered panic in the financial markets, so much so that Piazza Affari closed with -17%.
Today the stock markets are bouncing back but it is very early to draw conclusions. The cryptocurrency market, on the other hand, remains negative.