After reaching a point of extreme greed, the crypto market in a flash turned to fear. But investors shouldn’t panic––according to stock market analysts, the recent crash was normal profit-taking and portfolio rebalancing.
Could that also be the case with crypto, and the market will soon recover after what is a normal and healthy correction?
Is The Current Market Correction Healthy, Or A Sign Of A Deeper Drop Developing?
Across all markets this week, there’s been a massive selloff across the board. Among the hardest hit, were overvalued tech stocks and cryptocurrencies. The Dow Jones and the S&P 500 also slid, but nowhere near as violently.
Market sentiment swiftly switched from extreme greed to fear, and with Black Thursday still fresh in investors’ minds, they’re wondering how bad things get.
Related Reading | Be Fearful: Crypto Market Greed Reaches Second Highest Point In History
Thoughts were mixed on the subject, but a team of analysts got together on CNBC to share their views. Among the analysts, was Jason Snipe of Odyssey Capital Advisors who had a more rational theory.
“I look at this summer, which is historically great, particularly last month which was the best August in decades. I think it’s a little bit of rebalancing, I think it’s a little bit of profit-taking. I know September is historically a slow month, there won’t be a lot of news coming and also preparing for the election,” Snipe said.
Total CryptoCap Daily Price Chart | Source: TradingView
Crypto Market Could Recover, But Election Risk Remains: Profit-Taking and Rebalancing Is Expected
If the current crash is just profit-taking and portfolio rebalancing, as Snipe suggest, then any correction along the way up is normal and healthy.
Almost all crypto assets are up on the year thanks to a rising tide lifting all boats, and the stock market has been soaring to new all-time highs. Investors that bought in at any point during the year prior to this, are in profit and could simply be securing some of that.
Others could be taking profit from one investment, and putting it another, or even just cashing out and sitting out any coming storm related to the election.
Related Reading | Barron’s Recommends Hedging A Stock Portfolio, But What About Bitcoin?
The election coming this November remains the biggest risk hanging over the market, even larger than a global pandemic unlike the modern world has ever seen.
A Biden win is said to severely hurt markets, while Trump could cause things to, well, pump. But its the potential prolonged drama that could erupt over disagreements over poll counts.
With the pandemic currently making voting more challenging, the situation could be used to disrupt the election, leaving a cloud of uncertainty, and therefore risk, over the market.