Why Is Crypto Market Down? Here’s What Investors Should Keep In Mind Amidst Current Bear Trends

“With the current meltdown, investors must have patience, revisit their goals and avoid panic selling,” advises Mudrex CEO Edul Patel.

Cryptocurrency prices have been in a freefall over the past couple of days. So much so that within a span of four days, the global crypto market cap has dipped from $1.03 trillion (November 7) to $821.02 billion (November 10), as per CoinMarketCap data. As a result, top coins such as Bitcoin (BTC) and Ethereum (ETH) dipped from around $21,000 and $1,600 to $16,000 and $1,100, respectively. So, what’s causing the sudden meltdown in crypto prices? And, perhaps more importantly, what should investors keep in mind during the current bear trends?

Why are crypto prices falling?

It is largely believed that the recent liquidity issues faced by crypto firm FTX, and the sudden u-turn by the world’s biggest crypto exchange Binance to acquire FTX led to the recent bloodbath on price charts. 

On November 8, Binance CEO Changpeng Zhao tweeted that FTX asked Binance to help in dealing with a “significant liquidity crunch.” He said, “To protect users, we signed a non-binding LOI [letter of intent], intending to fully acquire FTX and help cover the liquidity crunch.” 

However, Zhao also clarified that the situation was “highly dynamic” and that Binance had the “discretion to pull out from the deal at any time.”

On November 10, Binance did exactly the same. In a tweet from the official company handle, the firm said, “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.”

Binance’s pullout resulted in a massive selloff among investors, wiping out between $180 billion to $200 billion from the overall crypto market, resulting in a fresh round of bloodbath.

“Irresponsible risks can be costly,” CoinSwitch CEO Ashish Singhal said in a tweet, commenting on FTX’s situation. “If you do not have the ability to get the assets you have (irresponsibly) used as collateral or enough cash reserve, then you are in for a downward spiral in a volatile market like this. Keep your books kosher, if you are offering customers lending or borrowing. Maintain healthy reserves for exigencies.”

"With Binance rejecting the FTX acquisition deal, it has caused a hyper-VUCA moment for crypto investors globally and thereby led to a massive downfall of various cryptocurrencies' prices,” Tezos India President Om Malviya told ABP Live. “After the Terra-Luna crash earlier this year, this fiasco is yet another wake-up call to remind us to shift our focus towards introducing increased transparency and decentralisation.”

What should investors keep in mind during the current bear market?

The first thing that investors should note is that this isn’t the first time the crypto market is seeing a meltdown, and probably won’t be the last. The recent LUNA crash, or even the massive crypto market crash of 2018 stands as a reminder of the extreme volatility of the digital assets sector. This could also be a time to buy the dip — with caution and suitable research — as has been the trend for several investors whenever prices are low.

“Crypto markets like all financial markets are cyclical in nature so each bear scenario will be followed by a bull period,” Mudrex CEO and co-founder Edul Patel told ABP Live. “With the current meltdown, investors must have patience, revisit their goals, and avoid panic selling. It is important that they pay attention to the basics of investment, conduct their own research and ensure diversification in their portfolio.”

weTrade CEO and founder Prashant Kumar said, “The series of events over the past few days have impacted the investor sentiment. It is a wake-up call for investors to thoroughly research before entering the market.”

“This could be a good time to observe the market rather than get into aggressive buying activities. An investor should always be in control of diversifying the portfolio to stay safe during any market downturns,” Kumar advised.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.