On August 5, the cryptocurrency market experienced extreme volatility, with the prices of Bitcoin (BTC) and Ethereum (ETH) falling sharply by 10% and 18% respectively in just two hours. This wave of selling not only affected these two major cryptocurrencies, but also other tokens, especially top 10 tokens such as Solana, which has fallen 30.6% since July 30, becoming one of the hardest hit cryptocurrencies.

Analysis of influencing factors

  1. Macroeconomics and Market Sentiment:

    • Weak economic data: Weak employment data, slowing growth in major technology stocks, and growing recession fears have combined to cause panic selling in the market. For example, non-farm payrolls data signaled a cooling labor market and rising unemployment, increasing the likelihood of a hard landing for the U.S. economy.

    • Global stock markets performed poorly: the Nasdaq and S&P 500 also fell, further exacerbating the market's risk aversion.

  2. Policy factors:

    • Expectations of a Fed rate cut: The market expects the Fed to cut interest rates to cope with economic pressure, but this expectation may have been digested by the market in advance, resulting in the good news failing to effectively boost market confidence.

    • Differences in monetary policies among countries: Among the world's major economies, Japan's interest rate hike policy is in sharp contrast to the interest rate cut expectations of the United States, Britain, Canada and other countries, increasing market uncertainty.

  3. Internal factors of the cryptocurrency market:

    • Large sell-offs: Trading firms such as Jump Crypto have dumped hundreds of millions of dollars in assets over the past few days, exacerbating the selling pressure in the market.

    • Liquidation of leveraged funds: As the prices of Bitcoin and Ethereum fell rapidly, a large number of leveraged positions were forcibly liquidated, further amplifying market volatility.

    • Sentiment Indicators: The Crypto Fear & Greed Index has fallen back to the “Fear” level, indicating extremely pessimistic market sentiment.

  4. Specific events impact:

    • Mt. Gox compensation launch: The launch of Mt. Gox compensation brought some selling pressure and increased supply pressure in the market.

    • Genesis bankruptcy reorganization: Genesis Global and its related companies completed bankruptcy reorganization and distributed approximately $4 billion in crypto assets and cash to creditors, which also aroused market concerns.

Looking ahead

Looking ahead, the cryptocurrency market is facing another difficult week. Most of the losses incurred over the weekend need to be supported by increased spot and derivatives activities of traditional financial institutions. However, in the long run, the cryptocurrency market still has certain potential. With the gradual recovery of the global economy and the continuous development of blockchain technology, cryptocurrencies may regain market attention.

In addition, investors should pay close attention to market dynamics and policy changes to develop reasonable investment strategies. In the current market environment, it is crucial to remain cautious and rational. For long-term investors, they can consider gradually increasing their positions at the right time; while for short-term investors, they need to pay attention to risk control and avoid blindly following the trend.

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