When Bitcoin prices trend downward, other altcoins usually lose value as well. Currently, Bitcoin's market cap is $1.33 trillion, accounting for 55.62% of the total market cap. This increase in dominance causes investors to turn to Bitcoin as a safe haven in volatile market conditions, and this causes altcoins to lose value.
There was a significant correction in the altcoin market last week, with market value falling 2.4% to $254.943 billion. This decline is due to overall market weakness and uncertainty around the Ethereum ETF launch, leaving many in the crypto space to question why altcoins are losing so much value.
Factors Leading to Altcoin Crash
The main driver behind the current market correction is the upcoming Consumer Price Index (CPI) release and the FOMC meeting on Wednesday. Historically, crypto markets have seen downward momentum in anticipation of such events.
For example, past statements by Federal Reserve Chairman Jerome Powell have often led to significant corrections in crypto markets. The previous two FOMC meetings had caused Bitcoin to fall more than 10% and altcoins to lose more than 20% in the week before the events.
Roaring Kitty Effect
A major event that affected the market was the 'Roaring Kitty' incident, which caused altcoin prices to drop. Last Friday's correction in GameStop sparked a broader market decline, with some altcoins losing more than 20%.
Besides this, the appreciation of the US Dollar and the ongoing quantitative tightening (QT) continued the downward trend, making the situation even more difficult for altcoin growth.
Despite the current negative sentiment, there are signs of a possible recovery. Historically, markets have recovered quickly after FOMC meetings. Ethereum gained nearly 20% after these meetings, while Bitcoin is up more than 20% since the last FED meeting.
What Happens Next?
Investors are watching the situation closely as rising US government debt and weakening economic data signal a possible interest rate cut. Senator Elizabeth Warren and several other senators called for rate cuts in their letter to Fed Chairman Jerome Powell to ease the financial burden on working Americans struggling with high housing and insurance costs.
The increase in the unemployment rate and the fact that the European Central Bank (ECB) has started to reduce interest rates indicate that the FED may reduce interest rates to prevent a potential recession.
Additionally, the Ethereum ETF is expected to be approved in the coming weeks, which could positively impact the altcoin market.
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