Bitcoin ‘Black Friday’ price crash: Why it happened, and what comes next

Analysts explain what caused collapse, and warn why bitcoin’s recovery may be a ‘long shot’

The price of bitcoin is down more than 50 per cent since its November peak (Getty Images)

A sudden price crash followed by several days of steady losses have pushed bitcoin to its lowest level in six months, down more than 50 per cent from the all-time high it experienced in November.

The abrupt downturn has renewed fears of a so-called ‘Crypto Winter’, with some analysts warning that it could be years before bitcoin and the broader market fully recovers.

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As is usually the case with major movements in the crypto market, the latest price collapse can be attributed to various factors, including a crackdown on crypto operations in Kazakhstan and fears of an outright ban in Russia. But the main cause of the slump appears to be a plunge in the stock market amid concerns of a potential hike in interest rates by the US Federal Reserve.

“Investors are maintaining a conservative stance in line with the highly anticipated US Federal Open Market Committee (FOMC) on Tuesday,” Alexander Mamasidikov, co-founder of the mobile digital bank MinePlex, tells The Independent.

“With the committee likely to signal its exact plans for the interest rate increase, many investors in the digital currency ecosystem are likely to start betting on more safe assets, thereby pulling funds away from crypto. Since the growth trend is now highly correlated with the stock market, any signs of potential recovery will be hinged on a wider correction in the stock market.”

Uncertainty in the broader financial markets has typically resulted in a sell-off of more volatile assets, like bitcoin (BTC), Ethereum (ETH) and other leading cryptocurrencies.

Nearly $1.5 trillion has been wiped from the overall crypto market in the last two months, with every single one of the top 10 cryptocurrencies continuing to suffer heavy losses in recent days.

The severity of the drop, dubbed bitcoin’s ‘Black Friday’ by some commentators, saw more than $175 million of bitcoin liquidations in a single day. However it is still not as profound as the one seen in 2021, when bitcoin fell from a then-record high of $64,000 in April to below $30,000 by July, before surging to a new all-time high before the end of the year.

Alex Axelrod, chief executive of Swiss financial service firm Aximetria, believes that such a bounce back is unlikely to happen this time, at least not in the short term.

“At this point, fear has gripped the cryptocurrency industry and investors are arguably aiming at rotating their capitals off risky assets that cryptocurrencies embody,” he says.

“Bitcoin’s recovery is a long shot as investors are more keen on the price being stabilised for now. Hopefully, the coin can maintain support at $32,500 in its bid to retest the $40,000 resistance level in the next few weeks.”

Bitcoin’s volatility is notoriously difficult to predict, and while it has followed the same recent trends of more traditional market, it has been known to completely buck from such patterns from a single event.

As has previously been demonstrated, a crash or a surge can be triggered by a single tweet from Elon Musk, or a statement from a world leader.

“Crypto is crypto because their growth tracks are not completely bound by macroeconomic events,” says Dmitry Mishunin, the founder and CEO of smart contract firm HashEx.

“A revival in price surge can be reignited with a boosted investor sentiment, which can come at any time.”