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The cryptocurrency market was rocked by a major drop on Saturday, marking one of the largest single-day drops in modern history and wiping billions in value, an expert told FOX Business.
The sudden collapse came after the US government’s announcement New definitions on Chinese technology imports, a move that shook investors and sparked panic.
Joshua Duckett, Director of Investigations at A.J Crypto forensics companyHe said traders were forced to liquidate their positions, which led to prices falling freely.
“Most people don’t invest more than they can lose, but in the cryptocurrency industry as a whole, in terms of leveraged trading, that’s in the billions,” Duckett explained.
A neon sign indicates that Bitcoin is accepted inside the headquarters of the Paralylny Police Project, an organization combining art, social science and modern technology, in Prague, Czech Republic. (Milan Garros/Bloomberg via Getty Images/Getty Images)
He added, “The amounts that people lost varied. Some lost hundreds, thousands, and millions, and the total liquidations amounted to billions.”
Bitcoin, the largest cryptocurrency, fell below $110,000, while Ethereum and other major tokens lost more than 20% of their value within hours.
Traders who had borrowed heavily to bet on rising prices were caught off guard, triggering a wave of forced liquidations that accelerated the collapse.
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Traders work during the opening bell at the New York Stock Exchange. (Johannes Eisele/AFP via Getty Images/Getty Images)
“The reaction of the cryptocurrency market was more extreme than the stock market because it operates 24/7.” Duckett said. “You’ll see the stock market react in a bad way. The cryptocurrency market reacted in a more extreme way.”
“There has been a market pullback in terms of multiple cryptocurrencies that have decreased in value over the past 24 hours, primarily due to market news, as well as the impacts of said news on people trading the cryptocurrency markets,” Duckett explained.
Leverage, the practice of borrowing to increase exposure, was the main driver of the losses, he said.
“People can borrow against what they have and leverage maximum amounts, essentially 100x in cryptocurrencies, which is a very large amount,” Duckett noted.
“So when those positions are liquidated, there is a big move either up or down. In this case, to the downside.”
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The number of people around the world who own at least $1 million in cryptocurrencies has risen over the past year. (iStock/iStock)
The sudden unwinding of these leveraged trades caused a chain reaction. “This has caused a spiral of cascading liquidations, basically,” Duckett said.
However, there are early signs that the market may be stabilizing. “The situation seems to have basically stabilized,” Duckett said. “Right now, we are in a bounce-to-stabilization mode. Tomorrow is a new day.”
“We’ve had a whole day of this kind of news affecting the markets and the initial knee-jerk reaction to recovery and stability. It all basically depends on the new news tomorrow,” Duckett added.
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“The first rule is not to invest more than you can lose – but this is not limited to cryptocurrencies, it is investing in general. In addition, researching what one invests in is also an essential part of it.”
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