Hawkish stances from Federal Reserve officials and alarming outflows from U.S. spot Bitcoin ETFs drove the sell-off in the cryptocurrency market.
The cryptocurrency market took a hit today, with the total market capitalization falling by more than 4.30% to around $2.50 trillion on June 18. The plunge has left many investors scratching their heads, trying to understand the core catalyst behind this downturn, and whether a recovery is imminent.
Fed officials’ rate cut predictions hurt crypto markets
Today’s cryptocurrency market decline is part of a correction that began over the weekend, when Minneapolis Federal Reserve Bank President Neel Kashkari made a “reasonable forecast” of only one rate cut in 2024.
“We need to see more evidence to convince us that inflation is coming back down to 2%,” Kashkari said June 16 on CBS’ “Face the Nation,” adding:
“Right now we’re in a very good position to take our time and get more data on inflation, more data on the economy and the labor market before we make any decisions.”
His comments contrast with expectations among bond traders in September and November for at least two rate cuts in 2024. The target rate probability of a September cut, for example, has fallen to 55% on June 18 from 66% at the weekend.
The reduction in rate cut expectations coincided with a rebound in U.S. Treasury yields, with the annualized yield on the benchmark 10-year bond (US10Y) rising 14 basis points since the weekly open on June 17.
Higher bond yields reduce the opportunity cost of holding riskier assets like cryptocurrencies, which is why the cryptocurrency market has fallen sharply this week, including today's losses.
Bitcoin ETF outflows continue
Today’s cryptocurrency market decline was further influenced by de-risking strategies adopted by Bitcoin exchange-traded fund (ETF) traders and investors.
Related: Digital asset funds see biggest weekly outflows since March
It is worth noting that U.S. spot Bitcoin ETF holdings fell 3.65% to around $15.1 billion in the week ending June 14. The outflow trend continued this week, with the investment vehicle's net reserves at $145.9 million on June 17, bringing the ETF's net reserves to $14.956 billion.
These outflows coincided with the strengthening of the U.S. dollar against a basket of major foreign currencies, as shown by the U.S. Dollar Index (DXY) indicator in the chart below.
DXY daily performance chart. Source: TradingView
A stronger dollar typically means lower risk appetite among investors, which helps explain the accelerated outflows from Bitcoin ETFs and the resulting anxiety in the cryptocurrency market.
Long-term liquidations hurt crypto market bulls
The cryptocurrency market’s decline accelerated further as long liquidations outpaced short liquidations over the past 24 hours.
Data from Coinglass shows that long traders (people who bet on the cryptocurrency market to rise) experienced about $403 million worth of liquidations in the past 24 hours. In contrast, short traders experienced more than $61 million in liquidations during the same period.
When long positions are liquidated, traders who bet on rising prices are forced to sell their positions, usually at a loss. This increased selling pressure has caused cryptocurrency market valuations to move lower today.
Will Trend Line Support Hold?
From a technical perspective, today’s cryptocurrency market decline is part of a correction inside its ongoing symmetrical triangle pattern. For example, after testing the triangle’s upper trendline as support, the market cap fell by 12.34%, as shown in the chart below.
Going forward, the crypto market valuation could bounce back to the upper trendline after testing the lower trendline as support. Ideally, by June, the market cap could reach $2.48 trillion, a 9.5% increase from the current levels.
Conversely, a break below the lower trendline could cause the cryptocurrency market capitalization to fall to the 200-day exponential moving average (200-day EMA; blue wave) of around $2.09 trillion.
Finally, there are still many things that are not written down, such as specific opportunities and specific decisions. These things are often not something that can be summarized in one article.
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