The cryptocurrency market experienced a notable decline on July 4, with the total market capitalization falling by over 5.7% to approximately $2.114 trillion. This drop is primarily attributed to two key factors: uncertainty in the U.S. economic outlook and significant outflows from spot Bitcoin exchange-traded funds (ETFs).

Impact of U.S. Economic Uncertainty

Investor uncertainty surrounding U.S. inflation and interest rates has significantly impacted crypto prices. Federal Reserve Chair Jerome Powell's recent remarks have played a crucial role in this scenario. Powell indicated that the Federal Reserve requires more convincing data before considering interest rate cuts, which are closely watched by crypto investors. In a speech on monetary policy, Powell emphasized the need for accurate data on underlying inflation before making any decisions on rate cuts. This cautious stance has dampened investor sentiment, contributing to the current market downturn. As of now, market expectations for two rate cuts this year are high, with a 65% probability for a cut in the September Federal Open Market Committee (FOMC) meeting, according to CME Group's FedWatch Tool.

Bitcoin ETF Outflows

The crypto market is experiencing outflows from spot Bitcoin ETFs. Over the week ending June 28, these ETFs saw net outflows of $37.3 million, with additional withdrawals amounting to $13.7 million and $20.5 million on July 2 and 3, respectively. These outflows have reduced the net ETF reserves to $14.62 billion. The continued withdrawals reflect a de-risking strategy by investors, exacerbating the market's decline. This trend is further mirrored in the derivatives markets, where long liquidations have intensified. Data from Coinglass shows that long traders faced $339.59 million in liquidations over the past 24 hours, while short traders saw $69.35 million in liquidations. Bitcoin alone accounted for $121.29 million in liquidations, with leveraged long positions being particularly hard-hit.

Technical Analysis

From a technical perspective, the crypto market's decline is part of a broader correction within a descending parallel channel pattern. Since June 7, the market capitalization has dropped by 19%, breaking through critical support levels like the 200-day exponential moving average (EMA) and the lower trendline of the declining channel. The relative strength index (RSI) positioned at 30 indicates strong bearish dominance. If the current sell-off persists, the market valuation could fall further towards the $2.0 trillion mark. Conversely, a break above the middle trendline could push the market cap back up towards $2.244 trillion.

Conclusion

In summary, the cryptocurrency market's recent downturn is driven by U.S. economic uncertainties and significant outflows from Bitcoin ETFs. These factors, coupled with technical indicators pointing to a bearish market structure, suggest potential for further declines in the near term.