5 reasons why the cryptocurrency market is crashing again

Highlights

• According to CoinMarketCap, major cryptocurrencies such as Bitcoin, Ethereum, Dogecoin, Cardano are in red. 
• After strong upside movement on Monday, there has been a drop in prices on Wednesday (as of 8:50 am)    

The cryptocurrency market has witnessed a volatile run of late. After recovering strongly from the lull of May, the market showed signs of recovery, with Bitcoin leading the charge. On Monday, while the altcoins made headlines by registering impressing gains, top cryptocurrencies too witnessed an excellent run.

However, on Tuesday and later Wednesday (as of BST 8:50 am) majority of cryptocurrencies were trading in the red. Bitcoin, for example is down by 1.43% and is trading at $45,391.06, with a 24-hour trading volume of $35,09,83,65,380, according to CoinMarketCap. 

The live Ethereum price is $3,070.98 with a 24-hour trading volume of $26,73,14,16,328 and is down by 3.38%, according to CoinMarketCap. Dogecoin, which had a fruitful Monday too, is down on Wednesday by 7.50%. DOGE is currently trading at $0.3009 with a 24-hour trading volume of $5,72,10,30,727 according to CoinMarketCap. 

Although too soon to pinpoint the exact reason for a possible crash, we look at five possible reasons that could have resulted in the recent crash. 

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The China regulatory effect

On Tuesday, the Chinese central bank, the People's Bank of China, announced that it had identified 11 companies who are involved in illicit crypto trading activities and aims to promptly clean and rectify them. 

China has been stringent on the use of cryptocurrencies and has been regulating exchanges and companies. China's crackdown started in May and has been aggressively promoting an open financial markets system and besides its ambitious plan to roll out digital yuan. The China crackdown had affected the cryptocurrency market in May, with many of the leading cryptocurrencies plummeting in prices and volume.     

Poly Network Scam

Recently, hackers breached the Poly Network and extracted more than $600 million in cryptocurrencies, making it the biggest hack ever in the decentralized finance space. Poly Network, which operates on the Binance Smart Chain, Ethereum and Polygon blockchains, has deeply impacted the investor's confidence. Although the hacker returned part of the money, market participants are sceptical about investing in cryptocurrencies.

Declining Volume

Decline in trading volume due to short squeeze in the rally. According to a cryptocurrency research firm, Arcane Research, trading on a declining volume represents an exhausted market, and in the long run, will not be a sustainable one. Arcane further added that the BTC volume had increased to $7 billion last week, has now pushed back to $5billion.

US Infrastructure Bill

The $1 trillion infrastructure bill approved by the US Senate earlier this month could be one of the reasons for pullbacks. The bill is expected to affect crypto brokers' tax-reporting requirements and how stockbrokers report their customers' sales to the IRS. Besides, it also pushes for tax compliance. With the government planning to reign the unregulated market, many market participants are not entirely open to the idea. 

The Securities and Exchange Commission (SEC) commissioner Gary Gensler is one of the strong advocators of investor protection in cryptocurrency. He has been quite vocal about regulating the market to reduce fraud, scams and abuse. This seems to have affected the market somehow, with the prices dipping briefly. 

Mark Cuban and Elon Musk Effect

The last time the cryptocurrency plunged, Tesla CEO Elon Musk tweeted that the company has stopped accepting bitcoin as a mode of payment. Even though he didn't make such bold comments this time around, Dallas Mavericks’ owner Mark Cuban and Tesla’s Musk were once again at it promoting Dogecoin by stating that it's one of the "strongest" cryptocurrencies in the market. This led to the spike in the prices of Dogecoin on Monday, but the steam seems to have run out and, since then, have not performed as it did on Monday.

Conclusion

In the past two days, the crypto market has been faring poorly, but the coming few days will be intriguing. There is a common perception amongst investors that crypto prices tend to drop over the weekend, and there could be further fall, though investors and traders would hope this time the crash is short-lived.