Why is the crypto market down today?
A hawkish Fed official and alarming outflows from the U.S.-based spot Bitcoin ETFs have helped drive the crypto market sell-off.
The cryptocurrency market took a hit today, with the total market capitalization dropping by over 4.30% to about $2.50 trillion on June 18. This plunge has left many investors scratching their heads, trying to understand the core catalysts behind this downturn and whether a recovery is on the horizon.
Fed official's rate cut projection hurt crypto market
Today's crypto market decline is part of a correction that started over the weekend when Minneapolis Federal Reserve chief Neel Kashkari made a "reasonable prediction" about only one rate cut in 2024.
“We need to see more evidence to convince us that inflation is well on our way back down to 2%,” Kashkari said during a June 16 telecast on CBS’s Face the Nation, adding:
“We’re in a very good position right now to take our time, get more inflation data, get more data on the economy, on the labor market, before we make any decisions.”
His comments contrasted bond traders' expectations of at least two interest rate cuts in 2024 in September and November. For instance, the target rate probabilities for the September rate cut have fallen to 55% on June 18 from 66% over the weekend.
The lowering of rate cut expectations coincides with a relief rebound in U.S. Treasury yields, with the annual returns on the benchmark 10-year bond (US10Y) rising 14 basis points since the weekly session opened on June 17.
Higher bond yields reduce the opportunity cost of holding riskier assets like cryptocurrencies, a reason why the crypto market has gone down considerably this week, including the losses today.
Bitcoin ETF outflows continue
Today's crypto market decline further takes cues from a de-risking strategy undertaken by the Bitcoin exchange-traded fund (ETF) traders and investors.
Notably, the U.S.-based spot Bitcoin ETFs witnessed a 3.65% drop to around $15.10 billion in its holdings in the week ending June 14. The outflows trend continued this week, with the investment vehicles witnessing $145.90 million worth of withdrawals on June 17, bringing the net ETF reserves to $14.956 billion.
Spot Bitcoin ETF cumulative inflows. Source: Farside Investors
These outflows coincide with a rise in the U.S. dollar's strength versus a basket of top foreign currencies, as tracked by the U.S. dollar index (DXY) metric below
A stronger dollar often signals a lower risk appetite among investors, which helps explain the accelerating outflows from Bitcoin ETFs and the resulting anxiety in the crypto market.
Long liquidations hurt crypto market bulls
The crypto market declines have accelerated further due to long liquidations overpowering the short ones in the last 24 hours.
Data from Coinglass shows that long traders—those betting on the crypto market upside—have witnessed circa $403 million worth of liquidations in the last 24 hours. In comparison, short traders suffered over $61 million in liquidations in the same period.
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.
Will the trendline support level hold?
From a technical standpoint, today's crypto market declines are part of a correction inside its prevailing symmetrical triangle pattern. For instance, the market capitalization has dropped 12.34% after testing the triangle's upper trendline as support, as shown below.
Looking forward, the crypto market valuation may rebound toward the upper trendline after testing the lower trendline as support. This could ideally take the market cap toward $2.48 trillion by June, up 9.5% from the current levels
Conversely, a breakdown below the lower trendline will likely crash the crypto market cap toward its 200-day exponential moving average (200-day EMA; the blue wave) at around $2.09 trillion.
