Black Monday: Bitcoin price plummets significantly – but why?

Bitcoin has rarely crashed this hard: Minus 17 percent. Ethereum and other coins sink even lower. What happened? What are the reasons – and what does this tell us about Bitcoin and the world?

With such red candles, it’s like with pain: You remember them coldly, knowing they existed, but not how they felt. That’s why every time it feels like experiencing it for the first time.

So here we are: Bitcoin had already painfully given up ground last week, from about 65,000 to a little over 56,000 euros. But all that was just the appetizer for the real crash that happened this night, pushing the price down by another 10,000 euros – to just under 46,000 euros.

Minus 17 percent in one day, minus 27 percent in a week. Such a crash is rarely seen.

Ethereum was hit even harder. The cryptocurrency fell by a whopping 23 percent in one day, from almost 2,700 to just over 2,000 euros. Over the course of a week, the loss sums up to about 33 percent. It’s almost the same story with other top coins, such as Solana or Cardano.

The total market capitalization of all cryptocurrencies shrank from 2.5 trillion to 1.8 trillion dollars in one week; a hefty 700 billion dollars evaporated in seven days. At least two coins largely escaped the downward spiral.

Monero (XMR) has also dropped significantly – but much less than Bitcoin. This is reflected in a rising XMR price in BTC. The privacy coin has apparently found a niche that makes it more resistant to speculative shocks.

Similarly, Tron also drops but rises significantly against Bitcoin. As the blockchain of the stablecoin Tether, Tron has found an application that makes it less exposed to the storms of speculative markets.

Overall, the situation is not very pleasant. But it cannot be changed. We can only look for reasons why it is the way it is.

Unlike previous crashes, there is not ONE clear cause this time, but rather a colorful bouquet of reasons. Possibly all have contributed and brewed together into the perfect storm.

1. The eternal dance of bulls and bears

One can imagine a market as a tug-of-war between optimistic bulls and pessimistic bears. The curves that form the prices are both a cause and an effect of this game.

As the price climbed over the past few weeks, it hit the 69,000-dollar threshold for the fourth time. This seems to be a strong resistance. Large holders may be waiting to sell at this point, or it may be a „Schelling-Point“ or „Focal Point“ where bears have silently agreed to trigger selling.

Whatever the reason – if the price forms a double, triple, or quadruple top, it is considered a strong bearish signal, the beginning of a powerful trend reversal. Especially if the top, as in this case, lay slightly lower than the previous ones. As the price broke through the 55,000-dollar low yesterday evening – essentially a bottom in this cycle where bulls usually put up a strong resistance – the price fell momentarily into a bottomless pit.

Bitcoin’s price depends on the eternal play of bulls and bears. Some want to push it up, others down. The chart that emerges represents the psychology of the markets – but also influences it. When a formation is known to be bearish, it becomes a self-fulfilling prophecy.

With the collapse to 45,000 euros, the bears have clearly won a round. But the bulls are likely already preparing for the next round, which is the good news.

2. The US government sells, Goxcoins hit the market

Donald Trump did indeed announce at Bitcoin2024 in Nashville exactly what the rumors had previously suggested – namely, to build a „strategic reserve“ in Bitcoin as the next President. But the appearance only slightly boosted the price.

There are several reasons why the effect was so disappointing. More importantly, however, is that one of the highest conceivable honors, a news item that would normally rocket the price to the moon, almost fizzled out. When the extraordinarily bullish news isn’t enough, it’s extraordinarily bearish.

Besides, the US government might be about to sell a batch of Bitcoins. Public blockchain analyst Arkham Intelligence shows that a government wallet with seized coins has apparently transferred 10,000 BTC for sale. That would be about 450 million euros.

Whether the US really sells Bitcoins, and whether it really moves the market, is hard to say. But just the speculation alone could be enough when the market is already pessimistic. It could be the momentum that allowed the bears to break the current bottom.

Additionally, in July, the Mt.Gox coins – a total of up to 141,000 BTC – were released. Although only a part of them is likely to be sold, it would be naïve to assume that such a sum leaving the vault would have no effect.

3. The Curry Trade

The third explanation reaches beyond Bitcoin. Financial markets around the world are burning. Black Monday 2024 brought one of the sharpest crashes in recent decades.

European markets lost around three percent, the US Nasdaq nearly five percent. In Asia, Taiwan’s stock market plummeted by eight percent, and Japan’s Nikkei suffered its worst day since Black Monday 1987 with a drop of 13 percent. An entire economy is reeling, like usually only seen with shitcoins.

Something is happening in the global financial world. Interest rates, used by central banks to regulate the money supply, are typically cited as the cause. Last week brought news from both the US and Japan, forming an explosive mix.

First, the US central bank Federal Reserve (Fed) did not lower the interest rate after a meeting, keeping it at a corridor of 5.25-5.5 percent. This high interest rate policy has been curbing dollar inflation for about 2.5 years by making credit-based money creation more expensive.

The persistently high interest rate raises fears that the US economy will crash into a recession. Therefore, markets expect the Fed to lower interest rates in September, as Chairman Jerome Powell hinted. This would bring the Fed back to an expansive monetary policy after 2.5 years.

Normally, such a rate cut would be bullish. Cheaper money and less attractive government bonds mean increasing liquidity flows into stocks and cryptocurrencies. But this time is apparently different. The reason likely lies in Japan.

The Bank of Japan is acting in the exact opposite way. Last week, it surprisingly raised the interest rate sharply from 0.1 to 0.25 percent and hinted at further increases. This narrows the interest rate gap between the US and Japan.

This interest rate gap apparently has been flooding the global financial markets with liquidity through the „Curry Trade“. Thanks to the low Japanese interest rate, traders could almost borrow yen for free, which they used to buy foreign financial products, such as tech stocks, cryptocurrencies, or US government bonds. A simple, largely risk-free trade.

This „Curry Trade“ has apparently been washing liquidity into global financial markets for decades. It worked well for a long time – but this year, the yen devalued sharply. Japanese households paid the price of the Curry Trade, while the falling yen made the trade even more profitable.

The Bank of Japan finally had to counteract. It raised interest rates, making the Curry Trade less lucrative. Additionally, the yen appreciated strongly, making the Curry Trader’s debts more expensive. To service them, they must offload other positions, such as Bitcoins or Nvidia stocks. This leads to a cascading, self-reinforcing effect.

The true extent of the Curry Trade is revealed only when it fails. It is possible that the worst is already over with the crash, or that it will begin when a crucial factor, which had been keeping global prices up for years, if not decades, disappears. The market is still figuring that out.

And to all this, we must add global tensions, growing fears of a third world war, the escalation announced by Iran, civil war-like conditions in the UK, an AI hype running out of steam, plummeting sales in the semiconductor industry … the terrain is becoming more confusing and erratic, driving capital, at least in the short term, from risky to supposedly safe positions.

All of this could be good for Bitcoin in principle and in the medium term. In the short term, however, the cryptocurrency is taking a hit.