‘Extreme Fear’ as Crypto Crash Triggers $800M BTC, ETH, XRP, SOL Liquidations

A sense of extreme fear is spreading in the cryptocurrency and stocks market on Monday. The closely-watched crypto fear and greed index is nearing the fear zone while the one tracked by CNN Money has moved to the fear zone of 27. 

Three of its sub-indices like market volatility, safe haven demand, and junk bond demand have all moved to the extreme fear zone. The market momentum index has moved to the fear point while the stock price breadth has moved to the neutral point.

Crypto liquidations surge

The ongoing fear in the market has triggered a $800 million liquidation in the crypto market. Data by CoinGlass shows that bulls liquidations jumped to over $800 million in the last 24 hours.

Most of these liquidations happened among the biggest tokens in the industry like Ethereum, Bitcoin, and Solana. Other notable liquidations were coins like Ripple (XRP), Pepe, Binance Coin (BNB), Avalanche (AVAX), and Filecoin (FIL).

Ethereum liquidations stood at over $297 million on Monday morning while Bitcoin jumped to over $239 million. Over 200,000 traders were liquidated in this period.

This trend happened as a sea of red spread in the crypto market as Bitcoin tumbled to $52,000 and Ethereum slumped by over 20% in the past 24 hours. Other popular tokens like BNB, SOL, XRP, and AVAX all dropped by over 10% in the same period. 

Japanese yen surge 

There are a few reasons for the ongoing crypto crash. First, traders are unwinding their long-standing carry trade as the Bank of Japan (BoJ) and the Federal Reserve are set to move in the opposite direction. 

The BoJ decided to hike interest rates by a whopping 0.25% last week as Japan’s inflation continued rising. At the same time, the US published weak economic data last week. These numbers revealed that the unemployment rate rose to 4.3% in July, a big increase from last year’s low of 3.5%.

Initial jobless rates have jumped while wage growth has stalled.  At the same time, the manufacturing PMI report has remained below 50, meaning that the sector is in a contraction zone.

Therefore, analysts now expect that the Fed will cut rates in September, with some expecting a jumbo cut. If this happens, it means that traders will unwind the carry trade, where they borrowed the yen to invest in the US dollar assets. This explains why, as shown below, the USD/JPY pair has sunk.

Warren Buffett is dumping stocks

The other reason why cryptocurrencies like Bitcoin, Solana, Ether, and Ripple are dropping is that Warren Buffett seems to be preparing for a big event in the stock market. 

In a report during the weekend, Berkshire Hathaway said that it dumped a substantial stake in Apple stock worth over $80 billion. The company now sits on over $277 billion in cash on its balance sheet. 

That means that Buffett is preparing for a big crash since he believes that stocks are overvalued. His favourite valuation gauge that measures the performance of stocks vs the US GDP has moved to extreme levels. 

Warren Buffett is widely seen as one of the best investors in the current generation and his moves have impacts around the world. As such, more investors could decide to sell their stocks because of his recent moves. Cryptocurrencies have a close correlation with stocks at times. 

Kamala Harris could beat Trump

The other reason for the ongoing crypto crash is that there are rising odds that Kamala Harris could beat Donald Trump in the November election. She has already raised over $300 million in the past few weeks and is gaining momentum in key states. PredictIt gives Kamala a 53% chance of beating Trump.

Recent polls show that Kamala is doing better than Joe Biden did. Her key advantages are that she is younger than Trump – age is a big factor in this election -, she is a woman and she has not been involved in scandals over the years. These factors could make her attractive among independent voters. 

Donald Trump has positioned himself as the most crypto-friendly candidate in the presidential candidate. He has supported self-custody and has vowed that he will not allow the government to sell over 213,000 Bitcoins it holds. 

Bitcoin’s lower lows and lower highs

BTC chart by TradingView

The other main reason why crypto tokens like ETH, XRP, SOL, and AVAX are falling is that Bitcoin has continued to have lower lows and lower highs, signaling that bears are now in control. 

This performance has also invalidated the notion that Bitcoin has been forming a bullish flag, an inverse head and shoulders pattern, and a falling broadening wedge pattern. Therefore, with the coin below the 200-day moving averages, there is a risk that it could continue falling. Altcoins move in extreme ways compared to Bitcoin.

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