Cryptocurrency markets are nothing if not volatile and the events of the past several days have provided ample evidence of that volatility. Cryptocurrencies across the board had seen large gains over the past month since bottoming out during the latter half of July, with Bitcoin rising over 50% and smaller cryptocurrencies like Solana and Cardano rising over 700% and 200% respectively. That price performance however put on the brakes this Tuesday as prices tanked across the board, culminating in the loss of nearly half a trillion dollars of value in the cryptocurrency market.
While this week’s carnage was far from the largest we’ve seen in the cryptocurrency space, it provided a stark reminder of the risks inherent to investing in digital assets. It was also reminiscent of flash crashes seen in March 2020 when COVID concerns tanked assets in every market and in May 2021 when Elon Musk spoke out against Bitcoin’s supposed environmental impact. That said, it seems unlikely that concerns surrounding the COVID delta variant were the cause of the current flash crash, nor were there any bearish comments from regulators or investors on which participants could pin the blame. In fact, Tuesday was meant to be a day of celebration for many in the crypto community as a result of El Salvador successfully recognizing Bitcoin as legal tender within its borders. So what was it that caused Bitcoin to lose billions of dollars’ worth of value over the course of a few minutes?