Following the price surge from earlier this year, the crypto industry saw a crash in mid-May that held strong until the end of July. Then, the prices started to recover throughout August and the first days of September — so much so that many assumed that a new price rally was about to start.
Unfortunately, over the last 24 hours or so, the tables have turned once again, and crypto prices started dropping anew, with Bitcoin itself losing over 17%, going from more than $52k per coin to $42k, and losing $10,000 in a matter of hours. This kind of crash was a bit too strong, however, and so the coin’s price managed to recover fairly quickly — not back to its original price, but it does sit at $46.6k at the time of writing.
As it was to be expected, Bitcoin’s crash pulled the entire market down with it, causing pretty much the entire crypto industry to trade in the red. Ethereum, for example, is currently 9% lower than 24 hours ago, while Cardano (ADA) which has already corrected over the last several days, is now down 10% in the last 24 hours, and 15.4% in the last week.
Most other coins are seeing similar issues, and percentages, with Binance Coin being down 13% in the last 24h, XRP going down by 15.2%, Solana by 12%, DOGE by 13.14%, and Polkadot, as the 10th largest crypto, is down by 15.5%. Other than stablecoins, which are once again serving as safe haven for concerned traders and investors, the crypto industry is seeing severe drops at the moment.
What caused the price crash?
While the crypto sector is known for its volatility, market-wide crashes of this magnitude do not tend to happen spontaneously, and there is usually a reason behind it. The reason is believed to be El Salvador’s messy adoption of Bitcoin as legal tender.
While the move is quite positive for the crypto industry, in general, the adoption process did see some technical issues. In the first few hours of the rollout, the small Latin American country’s president, Nayib Bukele, reported that the crypto wallet designed for storing and managing BTC was not working.
The news caused an immediate selloff, and BTC, which rebound by nearly 75% between late July and September 7th, crashed anew. The market supposedly lost around $400 billion of its market cap, which currently sits at $2.07 trillion.
Overall, this kind of behavior from the investors’ side is not entirely unexpected. Many were anticipating issues during the adoption of BTC in El Salvador, and they kept a close eye for any unfavorable developments. So, when Bukele announced technical issues, they were ready to immediately start selling their coins, thus causing a price drop to take place as strongly as it did.
Some investors may have bought in anticipation, but that quickly moved to selling as the issues emerged and the price started going below $50,000.
There is still no reason to worry
While retail investors panicked and started selling, experts have been making calculations and predictions, and they agree that the bull market is still ongoing. In fact, Bitcoin will remain bullish for as long as its price remains at $43k or higher, and the slight drop below this level essentially doesn’t count, since the price recovered almost immediately.
Galaxy Digital’s Mike Novogratz commented on the situation, stating that the crypto market was running quite strong over the last eight weeks. This caused it to become overbought, especially thanks to the surging interest from individual investors.
There are also those who believe that Bitcoin’s crash had nothing to do with El Salvador, such as David Gerard, who says that it was likely ‘shenanigans because it’s always shenanigans.”
He added that BTC doesn’t respond to market forces or regulatory announcements, so why would the situation be any different for El Salvador’s move? He stated that BTC has a price pattern where it crashes hugely in a matter of minutes, only to slowly climb back up and that it is ‘usually one of the big guys burning the margin traders.’
So far, he seems to be correct about the recovery following the correction, as BTC continues to climb back up towards the $50k mark. However, it is likely that the level will once again start acting as a strong resistance, and that the coin will not find it easy to cross it and keep moving forward again.
The selloff also came less than a day after JPMorgan warned its clients about the rallying altcoins, noting that a price correction is to be expected.
El Salvador buys more BTC
One good thing that came out of the entire incident is El Salvadore’s announcement that the country purchased an additional 150 BTC. It used the price crash to buy the coins at a discount and to increase its full holdings to 550 total coins, worth around $25 million, in total.
Previously, the country purchased 200 BTC on September 6th in preparation for the Bitcoin law implementation, using the money from a $150 million large fund meant to be used for this very purpose. In fact, the country also announced that it will be looking for opportunities to buy new coins before and after the adoption takes place, and the price crash came in handy to buy a large amount while also saving up a bit along the way.
But, at this point, the country has implemented BTC payments despite months of criticism, the World Bank’s refusal to help, and even initial wallet issues. El Salvador just made history in the best way possible, and there are likely those who are now considering doing the same, whether in order to attract crypto entrepreneurs or to use crypto to deal with the damaged economies.
Regardless of the reason why people may be attracted to crypto, El Salvador has shown that it is possible to have it implemented on a nationwide scale, and it is only a matter of time before someone decides to follow its example.