Crypto Market Sees Record Flash Crashes, What’s Going On?

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The crypto market has experienced an unprecedented surge in volatility, with established coins like Bitcoin and Ethereum facing extreme price swings. Since January, the frequency of flash crashes has risen sharply, erasing billions from the market. A crypto analyst has suggested that these flash crashes have been driven by several factors, providing a detailed insight into what’s really going on in the market.  Why Flash Crashes Are Occurring In The Crypto Market

A crypto analyst known as ‘The Kobeissi Letter’ has shed lighton the recent market crash and why top coins are falling drastically. The analyst revealed that the increasing number of flash crashes has resulted in over $300 billion being removed from the market in just 24 hours.  Related Reading Crypto Liquidations Cross $2.22 Billion, Here’s How Much Dogecoin Traders Lost 3 weeks ago

He disclosed that on the previous day, the market began selling off, with Bitcoin dropping below the $95,000 mark. Between 1:45 AM ET and 2:15 AM ET, the cryptocurrency had one of the most shocking crashes, falling by $5,000 in mere minutes. 

Ethereum, the second largest cryptocurrency after Bitcoin, had it even worse. The altcoin experienced massive liquidations that contributed to a 37% price crashon February 2, fueled by trade war headlines.  Source: The Kobeissi Letter on X

The Kobeissi Letter has revealed that the key factor behind these dramatic flash crashes is the growing divide between institutional and retail investors. Wall Street Hedge fundshave increased their short positions on Ethereum by 500% since November 2024, marking a historic level of institutional bearishness toward Ethereum. Short positioning in Ethereum has also increasedby over 40% in just one week. Moreover, Ethereum’s price is down by approximately 40% since December 2024, while Bitcoin has fallen by 15%. 

On the other hand, institutions have continued to accumulate Bitcoin, while retail investors have poured capital into smaller altcoins like Solana,creating extreme volatility in these assets. This “polarization,” as the analyst calls it, has led to the formation of “air pockets” in liquidity. As a result, when a sell-off starts, it triggers cascading liquidations, amplifying market instability and price crashes. 

The analyst has also pinpointed that this polarization phenomenon works in the opposite direction, as the market can experience rapid recovery, leading to billions added to its market cap within hours.  Shifts In Sentiment And Political Influence Contribute To Market Crash

The Kobeissi Letter revealed that the Fear and Greed Index has fallen from a bullish stance just weeks ago to 29% extreme Fear, underscoring the speed at which the market’s sentiment is changing to the negative. The analyst suggests that the extreme positioning in the crypto market is leading to these increasing flash crashes, making crypto significantly unpredictable.  Related Reading Crypto Fear And Greed Index Barrels Toward Extreme Greed Again As Bitcoin Price Clears $101,000, Is This Good News? 1 month ago

Adding to the turbulence, the analyst revealed that political and corporate influences have been dictating the crypto market. He underscored that Eric Trump had publicly supported buying Bitcoin and Ethereumduring dips, aligning with events like Ethereum’s February 3 recovery and Bitcoin’s rebound on February 25. 

While the market experiences flash crashesand instability, MicroStrategy continues to accumulate Bitcoin. The analyst revealed that the company had also contributed to the polarization of Bitcoin due to its unending accumulation trend. While the company buys more Bitcoin, MSTR stocks continue to fall, marking a 45% decline from their high on November 20. Total crypto market at $2.86 trillion | Source: TOTAL on Tradingview.com Featured image from Unsplash, chart from Tradingview.com