It’s bad out there — in the past 24 hours Bitcoin plunged as much as 30%, while Ether fell as much as 44%, crypto exchanges were down, price tracking websites collapsed, China crackdown news flashed, crypto Twitter panic ensued. All in all, a classic crypto sell-off. But there are signs the market is starting to recover.
The crypto market sell-off appears to be driven by concerns that fewer investors and institutions will be willing to buy Bitcoin after Elon Musk’s tweets criticising the largest cryptocurrency for its energy use. Plus, news that China’s regulators are restricting crypto use added to the bearish sentiment. Still, after the biggest crash since March 2020, some investors are jumping back in.
“News like this can get a lot of traction and easily stir market sentiments but they often prove of little significance in the long term,” Ulrik K. Lykke, executive director at crypto hedge fund ARK36, said in an email. “Things may be looking grim right now, but historically this is just yet another hurdle for Bitcoin to overcome and a small one compared to what it has braved in the past.”
BTC is recovering after touching $30,415 and ETH is bouncing back after almost touching $2,000, signaling some investors are betting the sell-off has gone too far, or taking the chance to add at lower prices.
ETH held in decentralized finance protocols is also climbing. Right now, it’s at 10.3M from a six-week low of 10M on May 12. Growing ETH in DeFi protocols is a bullish sign as it means traders are effectively betting the cryptocurrency will appreciate by using it as collateral and borrowing against it.
Though at $2,841 for ETH and $37,277 for BTC, these cryptocurrencies are still at the lowest price in 4 and 15 weeks, respectively.
DeFi traders are also feeling their share of pain, with a record of $650M in liquidations as of May 18, according to DeBank, a number that will likely climb as data updates for today’s losses.
In a bull market, these big drops are common, said Ganesh Swami, CEO and Co-Founder of data provider Covalent. The last time we saw a bull run, Bitcoin dropped at least half a dozen times by 20%-30% before it went to its then all-time high.
“With hundreds of projects getting built across various blockchains, key crypto segments like DeFi up at $71B of total value locked, NFTs getting their fair share of attention in mainstream media, Ethereum, the second-largest blockchain in the world, getting multiple efficiency updates and moving to PoS (proof-of-stake) in the upcoming months, the markets are bound to make a quick comeback sooner,” Swami said.