Why did Bitcoin Crash on Tuesday?

The current market downfall is a continuation of this process, in which cryptocurrencies are rebalancing their valuations after a mammoth pandemic rally.

There are a number of possible explanations for why bitcoin prices crashed today. The Chinese government announced that it would be regulating cryptocurrency exchanges and ICOs. This could lead to a decrease in demand for bitcoin, as people may choose to invest their money elsewhere.
Recent reports of regulatory uncertainty in South Korea,  could impact investor confidence and speculation about Meta’s plans for a cryptocurrency.  Fears have resurfaced over  US-China trade relations, which have led some investors to sell off their investments in cryptocurrencies.

However, it is clear that the main catalyst of the fall rests on Binance’s shocking news that it plans to acquire FTX created new concerns about general market liquidity.  As a result, bitcoin’s valuation dropped 12% to $911 billion, while Dogecoin fell 25%, and ether dropped 17.5%

The price of FTX Token plummeted by 84%, and Binance’s BNB also reversed significant earlier gains to collapse by 9%.

Binance CEO Changpeng Zhao tweeted, “To protect users, we signed a non-binding LOI, intending to fully buy FTX.com and help cover the liquidity constraint.

Zhao noted that the agreement was contingent on his company’s capacity to perform due diligence on both the exchange and the FTX purchase.

Financial details were not made public, but FTX CEO Sam Bankman-Fried tweeted: “The withdrawal backlog is currently being cleared by our personnel. Liquidity shortages will be eliminated, and all assets will be covered exactly. One of the key reasons we invited Binance in is because of this.”

His exchange experienced a liquidity issue earlier in the week when FTX Token prices fell precipitously. Concerns that the two branches of Bankman-empire Fried’s were dependent on illiquid crypto as opposed to cash or other liquid assets increased after a CoinDesk investigation last week stated that FTX-owned Alameda Research’s balance sheet relied mainly on FTT.

After the crypto market plummeted in the spring as a result of Terra’s stablecoin UST’s devaluation, which set off a chain reaction of collapses throughout the sector, FTX began to experience liquidity problems.

The current market downfall is a continuation of this process, in which cryptocurrencies are rebalancing their valuations after a mammoth pandemic rally.