What Happens to The Crypto Market When Bitcoin Crashes?
What Happens to The Crypto Market When Bitcoin Crashes?
September 11, 2023 | Crypto / Wallet
2 min read 
Admin
Table of Contents
Being the most valued cryptocurrency, Bitcoin has been a hot topic since its early days, especially when Forbes named it the best investment of the year back in 2013. This digital currency pioneer has been seen as a revolutionary development in finance. Not to forget, we do have several concerns about its stability.
Bitcoin is down for the second time in Q3 of 2023, with a cap of $1.17 trillion to $1.04 trillion. Analysts say this crash is deeply linked to the minutes released from the Federal Reserve meeting. The minute release on the 16th of August and the Personal Consumption Expenditure increased by 3.3% for July, indicating close encounters with Bitcoin and other cryptocurrencies.
The Bitcoin crash isn’t a new thing. In November 2021, the crypto king started to collapse right after the announcement of interest rates. The tank continued till March 2022, when the Feds decided to cut their sizes from the balance sheet. The Fed started tapering down from March 2022 until March 2023.
We did witness a recovery commencement by the end of 2022 the inflation rate began to perish. However, the market continued to show surprising data. Multiple Fed reserve meetings were conducted there may still be some more time for a complete recovery of the legendary Bitcoin.
Some crypto traders and investors have been selling their Bitcoin to counter potential losses, while others have gathered the courage to hold it until it goes beyond the mood. As seen previously, the whales typically buy Bitcoin more aggressively whenever the market is filled with red candles. So they buy this looming fear and hold their standings for the long run to generate higher, longer returns.
This could be the perfect time for Bitcoin to address and resolve its technical issues. At this time, many short-term crypto trading bots do not accumulate Bitcoin amid this bearish cycle. This could be the best time for formal traders to buy bitcoin. As a Greek entrepreneur said:
The Effect On The Cryptocurrency Industry
Whenever Bitcoin crashes, it has its ripple effects across the crypto industry in a broader way. The immediate effect of it crashing leads to a decline in other major cryptocurrencies, commonly known as altcoins. Most of the altcoins have a directly proportional relation with Bitcoin.
Authorities worldwide become more concerned about the overall stability and risk linked with cryptocurrencies during the bitcoin turbulence. Such collapse causes an increase in regulatory scrutiny, welcoming new and updated regulations.
World economies also see a major loss in the value of their digital assets. A big collapse is likely to destroy publicly listed crypto companies estimated at $90 billion. In comparison, private investments in crypto firms like crypto exchanges are also at risk. We can expect a fall in the global cryptocurrency market cap valued at over USD 800 billion.
Effect on Companies involved with Crypto Industry
Other entities within the crypto industry, including prominent graphics card manufacturer Nvidia, could also face significant repercussions. The initial shockwave of this event could lead to a staggering $2 trillion in losses for stakeholders, a figure surpassing Amazon's entire market capitalization.
Consequently, a substantial amount of financial resources would be depleted, leaving long-term investors bereft of the expected returns for investing in cryptocurrencies. However, the losses remain relatively modest relative to their initial outlays.
The most significant financial setbacks would be borne by those who purchased Bitcoin within the past year, suffering an average loss of $37,000 compared to their original investment. Bitcoin investors who have yet to liquidate their holdings may find themselves in a shaky position.
State of Traditional Finance
The crash of Bitcoin had a minor effect on traditional finances. However, it is the other way around. Volatility within traditional finance can either burn or boost bitcoin’s price as they determine how easy it is for financial hubs like Wall Street to invest in bitcoin. Such moves send more money to Bitcoin from Wall Street. For example, major banks offering bitcoin to clients often correspond with price rises. Traders are scared of bad news like a Wall Street giant slamming on Bitcoin.
Bitcoin usually rises when giant corporations announce Bitcoin in their balance sheets. Bitcoin also significantly increases when enterprises like Tesla and MicroStrategy invest in Bitcoin. Likewise, the crypto market cap declined from $2.43 trillion to $2.0.3 trillion when Elon announced that Tesla would no longer accept Bitcoin as a payment method in May 2021, giving environmental reasons.
More traditional financial products also impact the price of bitcoin, specifically derivative products representing contracts and tracking the underlying price of Bitcoin. Moreover, like other crypto alternatives, leveraged futures trading can typically fuel steep price fluctuations.
Cryptocurrencies give traders or investors the right, but they are not obliged to buy or sell the underlying asset, in this case, Bitcoin, at a specific price before or on a specific date. When a massive amount of OTM crypto options are near to expire, it considerably impacts traditional finances. OTM means when certain crypto options are not profitable anymore. For instance, the call option. Whenever the strike price, the accepted price of an asset, is higher than the current market price, the right to buy the underlying asset is said to be OTM.
Before OTM expires, it's normal for big investors to barricade the asset, aiming to minimize more loss in case the bitcoin switches momentum.
What’s Next?
This crisis has the potential to ripple through various investment sectors in diverse ways, with one such channel being leverage. A substantial portion of Bitcoin investments is channeled into independent derivatives like xNFTs, representing continuous wagers on future price movements.
Furthermore, a significant volume of cryptocurrencies is traded on centralized exchanges such as Coinbase and Finance, where users can leverage borrowed funds to amplify their bets. Even minor fluctuations in prices could trigger substantial margin calls, and in the event these calls are not met, exchanges would promptly execute trades on behalf of their clients, precipitating an indefinite decline in crypto prices.
Such a collapse in Bitcoin's value would inevitably precipitate a cascading effect, causing many other cryptocurrencies to plummet. In light of the cryptocurrency market's premier coin losing its entire value, traders would be inclined to offload their crypto assets swiftly to mitigate further losses.
Table of Contents
Being the most valued cryptocurrency, Bitcoin has been a hot topic since its early days, especially when Forbes named it the best investment of the year back in 2013. This digital currency pioneer has been seen as a revolutionary development in finance. Not to forget, we do have several concerns about its stability.
Bitcoin is down for the second time in Q3 of 2023, with a cap of $1.17 trillion to $1.04 trillion. Analysts say this crash is deeply linked to the minutes released from the Federal Reserve meeting. The minute release on the 16th of August and the Personal Consumption Expenditure increased by 3.3% for July, indicating close encounters with Bitcoin and other cryptocurrencies.
The Bitcoin crash isn’t a new thing. In November 2021, the crypto king started to collapse right after the announcement of interest rates. The tank continued till March 2022, when the Feds decided to cut their sizes from the balance sheet. The Fed started tapering down from March 2022 until March 2023.
We did witness a recovery commencement by the end of 2022 the inflation rate began to perish. However, the market continued to show surprising data. Multiple Fed reserve meetings were conducted there may still be some more time for a complete recovery of the legendary Bitcoin.
Some crypto traders and investors have been selling their Bitcoin to counter potential losses, while others have gathered the courage to hold it until it goes beyond the mood. As seen previously, the whales typically buy Bitcoin more aggressively whenever the market is filled with red candles. So they buy this looming fear and hold their standings for the long run to generate higher, longer returns.
This could be the perfect time for Bitcoin to address and resolve its technical issues. At this time, many short-term crypto trading bots do not accumulate Bitcoin amid this bearish cycle. This could be the best time for formal traders to buy bitcoin. As a Greek entrepreneur said:
The Effect On The Cryptocurrency Industry
Whenever Bitcoin crashes, it has its ripple effects across the crypto industry in a broader way. The immediate effect of it crashing leads to a decline in other major cryptocurrencies, commonly known as altcoins. Most of the altcoins have a directly proportional relation with Bitcoin.
Authorities worldwide become more concerned about the overall stability and risk linked with cryptocurrencies during the bitcoin turbulence. Such collapse causes an increase in regulatory scrutiny, welcoming new and updated regulations.
World economies also see a major loss in the value of their digital assets. A big collapse is likely to destroy publicly listed crypto companies estimated at $90 billion. In comparison, private investments in crypto firms like crypto exchanges are also at risk. We can expect a fall in the global cryptocurrency market cap valued at over USD 800 billion.
Effect on Companies involved with Crypto Industry
Other entities within the crypto industry, including prominent graphics card manufacturer Nvidia, could also face significant repercussions. The initial shockwave of this event could lead to a staggering $2 trillion in losses for stakeholders, a figure surpassing Amazon's entire market capitalization.
Consequently, a substantial amount of financial resources would be depleted, leaving long-term investors bereft of the expected returns for investing in cryptocurrencies. However, the losses remain relatively modest relative to their initial outlays.
The most significant financial setbacks would be borne by those who purchased Bitcoin within the past year, suffering an average loss of $37,000 compared to their original investment. Bitcoin investors who have yet to liquidate their holdings may find themselves in a shaky position.
State of Traditional Finance
The crash of Bitcoin had a minor effect on traditional finances. However, it is the other way around. Volatility within traditional finance can either burn or boost bitcoin’s price as they determine how easy it is for financial hubs like Wall Street to invest in bitcoin. Such moves send more money to Bitcoin from Wall Street. For example, major banks offering bitcoin to clients often correspond with price rises. Traders are scared of bad news like a Wall Street giant slamming on Bitcoin.
Bitcoin usually rises when giant corporations announce Bitcoin in their balance sheets. Bitcoin also significantly increases when enterprises like Tesla and MicroStrategy invest in Bitcoin. Likewise, the crypto market cap declined from $2.43 trillion to $2.0.3 trillion when Elon announced that Tesla would no longer accept Bitcoin as a payment method in May 2021, giving environmental reasons.
More traditional financial products also impact the price of bitcoin, specifically derivative products representing contracts and tracking the underlying price of Bitcoin. Moreover, like other crypto alternatives, leveraged futures trading can typically fuel steep price fluctuations.
Cryptocurrencies give traders or investors the right, but they are not obliged to buy or sell the underlying asset, in this case, Bitcoin, at a specific price before or on a specific date. When a massive amount of OTM crypto options are near to expire, it considerably impacts traditional finances. OTM means when certain crypto options are not profitable anymore. For instance, the call option. Whenever the strike price, the accepted price of an asset, is higher than the current market price, the right to buy the underlying asset is said to be OTM.
Before OTM expires, it's normal for big investors to barricade the asset, aiming to minimize more loss in case the bitcoin switches momentum.
What’s Next?
This crisis has the potential to ripple through various investment sectors in diverse ways, with one such channel being leverage. A substantial portion of Bitcoin investments is channeled into independent derivatives like xNFTs, representing continuous wagers on future price movements.
Furthermore, a significant volume of cryptocurrencies is traded on centralized exchanges such as Coinbase and Finance, where users can leverage borrowed funds to amplify their bets. Even minor fluctuations in prices could trigger substantial margin calls, and in the event these calls are not met, exchanges would promptly execute trades on behalf of their clients, precipitating an indefinite decline in crypto prices.
Such a collapse in Bitcoin's value would inevitably precipitate a cascading effect, causing many other cryptocurrencies to plummet. In light of the cryptocurrency market's premier coin losing its entire value, traders would be inclined to offload their crypto assets swiftly to mitigate further losses.
FAQS
If the value of Bitcoin crashes to zero, the first that will be affected immediately is the crypto mining operations. Miners across the world would have to shut down their businesses. Apart from that, the general public will no longer have their confidence in the crypto industry.
There could be multiple scenarios of what will happen to Ethereum when Bitcoin crashes. In general, all altcoins are directly proportional to Bitcoin. However, the relation between Bitcoin and Ethereum is quite complex. Ethereum could either gain points or follow its path depending on why the bitcoins collapse. In the short term, the crash of Bitcoin will likely lead to the decline of all cryptocurrencies, even Ethereum.
Bitcoin has crashed for the second time in the third quarter of 2023. Crypto analysts say that this crash is due to the lack of clarity from the government and regulatory bodies, feeding the bearish woes that have dragged cryptocurrencies to their present trading price. However, with the possibility of crypto regulation bills on the verge of dismissal, this could be how the future may be the biggest for digital assets worldwide.
Changes hands among the market investors. This means that some traders gain money while others lose.
