Written by 3:09 pm Cryptocurrency

Why Crypto Is Down Today? – Forbes Advisor

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It’s no longer a $1 trillion market. In a drastic set of events, the total market capitalization for crypto has slid to $870 billion in just a few short days.  At the heart of the sell-off: FTX’s liquidity issues. The “too big, too fail” exchange based in The Bahamas has prompted the latest downturn in the sector.

In the last several days, there have been mounting concerns about FTX’s apparent insolvency. The price of FTX’s native token remains in freefall. FTT token is down more than 80% over the past five days.

In a rapid series of events that unfolded largely on Twitter, FTX attempted to sell a large part of its operating business to rival Binance after a wave of withdrawals threatened to take FTX down. But just as quickly as Binance offered its rescue package in the form of an acquisition,  the company retrenched it.

“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged U.S. agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” said Binance CEO Changpeng “CZ” Zhao in a Nov. 9 tweet, only a day after offering a bail-out package.

With Binance walking away, FTX continues to spiral downward.

The great crypto empire that Sam Bankman-Fried built is crumbling rapidly. The FTX’s CEO is no longer a member of the billionaire’s club. SBF, as he’s commonly referred to in the crypto world, has vanished overnight from the Bloomberg Billionaires Index, with his net wealth plummeting 94% to nearly $991.5 million in a single day.

Crypto contagion has also spread. Steep drops have precipitated in the Bitcoin (BTC) and Ethereum (ETH) markets. BTC is down more than 17% over the past five days, while ETH has lost nearly 18% of its value.

Other leading altcoins were down as well. Solana (SOL), in which Bankman-Fried is a prominent backer, is down 12% in the last 24 hours.

BTC has lost about 63% of its value since the beginning of the year. The original crypto’s price has fallen below $18,000. Ethereum prices are now down 64% year to date, falling to the $1,300 threshold. That’s well off Ethereum’s (ETH) all-time high at nearly $4,900 in November 2021.

What You Need To Know About Crypto Investing

Early investors in Bitcoin, Ethereum, and other cryptocurrencies have made a killing.

“As we’ve seen over the last year, a down market can rapidly turn into a bull market,” John Wu, president of Ava Labs, says.

But the cryptocurrency market has a long history of extreme volatility, which is not what investors are looking for in uncertain market conditions.

Bitcoin alone has had several deep pullbacks of more than 80% throughout its history, most recently in 2018.

The original crypto is not tied to physical assets or intellectual property and doesn’t generate cash flow or pay a dividend or interest to investors. Experts say that BTC prices are connected exclusively to supply and demand, making it difficult to assess their fundamental value.

Berkshire Hathaway CEO and investing legend Warren Buffett once discussed Bitcoin’s shortcomings at a Berkshire annual investor meeting, telling investors he wouldn’t pay $25 for “all of the Bitcoin in the world.”

“Whether it goes up or down in the next year or five years or 10 years, I don’t know. But one thing I’m sure of is that it doesn’t multiply. It doesn’t produce anything,” he said.

Bitcoin and other cryptocurrencies may eventually see their volatility die down. Still, the recent price action in the cryptocurrency market suggests the bumpy ride could continue for crypto investors in the near term.

Should You Buy the Dip in Crypto?

When buying the dip, crypto investors should proceed with extreme caution.

When asset prices decline as rapidly as they have in the crypto market recently, it can make that coin you’ve had your eye on look like a super deal. But old Wall Street professionals have a rule of thumb that aptly describes moments like this: “Never try to catch a falling knife.”

Using your imagination, you should understand that catching a falling knife—aka “buying the dip”—nearly always ends painfully. That’s not to say that skillful investors can’t make a quick buck trading on heightened market volatility. But the point here is that big, fast market moves can be unsettling for the typical retail investor.

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