Flash Crashes Are Increasing: Understanding the Recent $300 Billion Electronic Money Decline

The cryptocurrency market is experiencing a significant upheaval, with $300 billion wiped out in just 24 hours. This massive sell-off has raised concerns among investors, prompting analysts to explore the underlying cause of this sharp decline. Bitcoin and Ethereum dropped sharply According to information from Kobelsi Letter, a global commentator on the capital market, the frequency of "flash crashes" in the cryptocurrency field has surged since January. These rapid price drops can occur without major price news, causing investors to be puzzled by sudden fluctuations. The recent downturn began with Bitcoin (BTC), which initially fell below $95,000. However, a sharp drop from $95,000 to $90,000 within just 30 minutes in the early morning woke traders up Ethereum (ETH) fared even worse, dropping as much as 37 percent in 60 hours on Feb. 2, despite the trade war headlines being reflected in the market price. According to analysts, one of the key factors contributing to the volatility of this cryptocurrency is the drastic change in liquidity and short positions in Ethereum. In just one week, short positions have skyrocketed by 40%, and as of November 2024, they have skyrocketed by 500% The unprecedented short selling level of Wall Street speculative funds has created a shaky situation for Ethereum, a currency currently valued at around 300 billion dollars. As institutional investors increasingly shorted Ethereum, many turned their attention to Bitcoin, creating a stark contrast in market dynamics. While retail investor interest in Bitcoin has waned, partly due to the rise of memecoins, institutional capital continues to flow into Bitcoin, exacerbating the volatility of altcoins like Solana. Retail investors compared to institutional investors in the context of cryptocurrency fluctuations Kobelsi further emphasizes that the current market environment is characterized by the polarization between retail and institutional investors. As liquidity decreases, price fluctuations become increasingly erratic. This leads to significant 'gaps' where sentiment can change drastically, resulting in rapid price changes. Recent psychological analysis shows that the cryptocurrency market is experiencing the lowest level of enthusiasm in 2024. The Cryptocurrency Fear and Greed Index, which previously indicated a greedy state, has now decreased to a fearful level of 29%. Such changes in psychology often occur before sudden collapses, as traders react to changing circumstances. To add to the complexity of the situation, public figures like Eric Trump have spoken out about their views on the largest cryptocurrencies, Bitcoin and Ethereum. Trump suggested that these price drops present a buying opportunity, a viewpoint that could influence the behavior of retail investors. Furthermore, companies like MicroStrategy also impact the cryptocurrency market dynamics. Despite the company's stock falling by 45% since its peak on November 20, MicroStrategy continues to accumulate Bitcoin through convertible bond offerings, reinforcing the company's commitment to cryptocurrency and potentially influencing market sentiment.

As of now, Ethereum has regained the $2,500 level after dropping below $2,300 on Tuesday, marking a 7% loss in the 24-hour period.