3 reasons behind the crypto crash that dragged Bitcoin below $50K

BTC-USD-2.26%. ETH-USD-3.83%

Why is the cryptocurrency market crashing?

It’s always hard to pinpoint an exact cause, but in this case, there seem to be a number of factors at work.

Just to give you an idea of the magnitude of the drop (though the price of bellwether Bitcoin (BTC-USD) had recovered a bit by early Saturday afternoon to above $48,000, from a low of around $45,000), understand that BTC was testing $57,000 just Friday. The move from then to this afternoon’s levels represents a 14.2% drop.

Other digital coins like Ethereum (ETH-USD) have also plunged over the past 24 hours as well. Republicworld.com notes that “the total crypto market cap fell from $2.6 trillion on Friday to $2.07 [trillion] on Saturday. The total market value touched $3 trillion last month, for a very short time.”

So what gives here?

THE FED

First weakness in plain vanilla equities, in part brought about by Federal Reserve taper talk, has investors spooked by speculative assets. Famed investor Louis Navellier’s warned “that the US Federal Reserve’s tapering could burst the Bitcoin and crypto bubble.”

Navellier said the Fed’s tapering “should create a correction in risk assets, of which Bitcoin is a part.” He also warned that Bitcoin’s price could drop below $10,000.

THE COVID

Obviously the Omicron variant outbreak and the uncertainty surrounding its severity – and the efficacy of vaccines, which is still to be determined – also has investors running for the hills, (which I touched on yesterday.)

THE HOLIDAYS

Also, ‘tis the season. Many investors seeing the year winding down are looking to lock in gains and take money off the table. After all, even with recent decline, BTC is still up 66% year to date (Bitcoin started the year around $29,400)

Where do we go from here? Always hard to tell. For sure winter is coming. But is it crypto winter?

If I were to guess, I would say that the severity (or not) of Omicron could be a big determining factor.