The cryptocurrency market took a hit on July 4, with the total market capitalization dropping by over 5.7% to about $2.114 trillion. This plunge has left many market participants questioning the core catalysts behind this downturn, and how much longer it may continue. 

Let’s look at the factors driving the crypto market down today.

U.S. economic uncertainty hurts the crypto market

Investor uncertainty surrounding U.S. inflation and interest rates also weighs on crypto prices. Today’s crypto market decline is part of a correction that started on July 1 following recent remarks by Federal Reserve chair Jerome Powell that reduced possible rate cuts in 2024.

Powell explained that the U.S. Federal Reserve needed more convincing data that conditions were right to lower interest rates — a key move being watched by crypto investors.

In his speech on the economy and monetary policy at an event in Portugal, Powell said the central bank wants to “understand that the levels that we’re seeing are a true reading on what is actually happening with underlying inflation,” as quoted by Reuters.

Investors are looking forward to two or more interest rate cuts this year, with the odds of a rate cut coming at the September meeting of the Fed’s Federal Open Market Committee (FOMC) still standing at around 65% at the time of writing, per data from CME Group’s FedWatch Tool.

“It’s clear that the Fed will continue their ‘meeting by meeting’ approach,” trading resource The Kobeissi Letter declared in part of a response on the X social media platform.

“While markets are expecting two rate cuts this year, the Fed’s latest guidance says one cut is coming.”

Bitcoin ETF outflows continue

Today's crypto market decline further reflects a de-risking strategy undertaken by spot Bitcoin exchange-traded fund (ETF) traders and investors.

Notably, the U.S.-based spot Bitcoin ETFs witnessed net outflows of $37.3 million during the week ending June 28. The outflow trend continued this week, with the investment vehicles witnessing $13.7 million and $20.5 million worth of withdrawals on July 2 and July 3, bringing the net ETF reserves to $14.62 billion, as per Farside Investors data.

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The outflows coincide with accelerated long liquidations across derivatives markets, overpowering the short ones in the last 24 hours.

Data from Coinglass reveals that long traders—those betting on the crypto market's upside—have witnessed a total of $339.59 million worth of liquidations in the last 24 hours. In comparison, short traders suffered over $69.35 million in liquidations in the same period.

Bitcoin (BTC) liquidations reached $121.29 million, with over $99.51 million worth of cumulative leveraged long positions liquidated, according to CoinGlass data.

When long positions are liquidated, traders who are betting on prices going up are forced to sell their positions, often at a loss. This increased selling pressure has driven the crypto market valuation lower today.

A weakening market structure points to a deeper sell-off

From a technical standpoint, today’s crypto market declines are part of a correction inside its prevailing descending parallel channel pattern. For instance, the market capitalization has dropped 19% since turning down from $2.6 trillion on June 7.

The sharp correction on July 4 has seen the TOTAL crypto market capitalization lose crucial support levels, including the 200-day exponential moving average (EMA) and the lower trendline of the declining channel, which are at $2.114 trillion and $2.1 trillion, respectively.

Looking forward, the position of the relative strength index at 30 asserted the bears’ dominance in the market. If the sell-side activity continues, the crypto market valuation may drop further toward the $2.0 trillion market over the next few days.

Conversely, a break above the middle trendline will likely push the crypto market cap toward the upper trendline, which is around $2.244 trillion.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.