Bitcoin Plummets Amid Global Market Panic: What’s the Cause?

The price of Bitcoin has fallen more than 15% amidst a global market panic.

Sell-offs in global stock markets have impacted the entire cryptocurrency market.

Bitcoin has dropped by more than 15%, while Ethereum has seen its steepest decline since 2021. The panic in global markets, triggered by geopolitical tensions, concerns about the economic situation, and a reassessment of the real prospects of the AI sector, has led to a collapse in cryptocurrencies. Investors worldwide are rapidly shedding risky assets.

On August 5, the price of Bitcoin (BTC) on the Binance cryptocurrency exchange stood at $51,600 against the stablecoin USDT. On the morning of August 5, the price briefly fell below $50,000. This is the lowest price since January 2024 and the sharpest drop for the leading cryptocurrency since 2021.

BTC/USD
52,695 -7,790 (-12.88%)

Ethereum (ETH), the second-largest cryptocurrency by market capitalization, has dropped even more in percentage terms—over 20% in a single day. As of 10:00 AM on August 5, Ethereum was trading at $2,200. At one point, ETH fell below $2,100, marking its lowest price in 2024.

According to experts surveyed by Bloomberg, cryptocurrencies have come under pressure due to the unwinding of a popular carry trade strategy among traders, which is based on the interest rate differential between the yen and other currencies.

The increase in interest rates in Japan has led to a massive outflow of capital and put pressure on the global financial market, including cryptocurrencies, which are traditionally sensitive to macroeconomic changes.

The collapse of Japan's Nikkei index during trading surpassed the fall on "Black Monday" in 1987. Amid fears of a recession in the US, the drop exceeded 13% before the close of trading.

American stock markets also declined at the end of last week following a disappointing US jobs report. The Nasdaq index fell by 2.4%. This news, combined with unsatisfactory results from major tech companies like Intel and Amazon, increased market volatility.

Other major cryptocurrencies by market capitalization, including XRP from Ripple, BNB from Binance, Cardano (ADA), Solana (SOL), and Toncoin (TON), followed Bitcoin into the red. Among the top ten by market capitalization, Solana (SOL) showed the largest drop in 24 hours, around 4.5%.

Over the past day, crypto traders have lost more than $1 billion in liquidations, according to Coinglass. Most of the forcibly closed positions were long positions in BTC and ETH. This means that traders using leverage did not have enough funds to maintain their positions. Approximately $361 million in liquidations occurred in Bitcoin, while Ethereum's total liquidation volume reached $345 million.