Why Bitcoin, Ethereum and Other Cryptocurrencies Suddenly Crashed Friday Afternoon

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What happened

A sell-off in the cryptocurrency market on Friday accelerated after trading closed on Wall Street. The sell-off seems to feed on itself, causing panic in the market.

Altcoins are down today, with some trading down over 30%, but the declines of giants like Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH) are staggering. As of 5:45 PM ET, Bitcoin is down 10.8% in the past 24 hours and 5.4% in the past hour and a half at $35,724. Ethereum is down 16.8% in the past day and 6.9% in the past 90 minutes at $2,512.

Cardano (CRYPTO:ADA) is also down 13.4% in the past 24 hours while Solana (CRYPTO:SOL) is down 19.1%. In the list of altcoins, there is a rapid sale before the weekend.

Image source: Getty Images.

So what

There are a few things to consider in short-term trading. The first is that liquidations are accelerating as investors with leveraged bets on rising crypto prices are liquidated from those positions. According to coinglass.com, $1.14 billion in crypto positions have been liquidated in the last 24 hours and $416 million of that lot has arrived in the last four hours alone. This is happening across the industry, but Ethereum is the hardest hit with $113 million in liquidations in the past four hours.

While this is happening, gas fees are skyrocketing, especially on the Ethereum blockchain. Gas is the price you pay validators to transact, and the price of gas increases when the blockchain is congested.

Yesterday at this time, the gas price in Ethereum was 203.7 GWei and right now it is above 550 GWei. At this time of day, it’s not unusual for gasoline charges to be close to 100 GWei, so there is clearly a high level of activity, likely led by panic selling in the market.

Now what

The challenge with the current situation is that we don’t know when the sale will stop. When leverage and panic selling collide, the market can plunge quickly, especially in the 24-hour cryptocurrency market.

One thing to worry about is that some of the liquidy, or market makers who will buy when others sell, may dry up over the weekend. I don’t think it’s a coincidence that the rapid selloff started just after the market closed for the weekend on Friday afternoon.

Volatility is normal for cryptocurrencies, but right now it’s working against investors rather than for them, as it has for most of the past two years. This may continue until the market finds a bottom, which may still be a long way off. Long-term, there’s a lot of innovation in cryptocurrencies, but that doesn’t mean this selloff won’t be painful for many investors.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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