Today, the cryptocurrency market saw a significant downturn, with its total market capitalization plummeting by over 4.30% to approximately $2.50 trillion on June 18. This sharp decline has left numerous investors puzzled, as they seek to grasp the primary factors driving this market movement and speculate on the possibility of a future recovery.
Crypto market impacted by Fed official’s forecast of rate cuts
The recent decline in the crypto market began over the weekend following Minneapolis Federal Reserve chief Neel Kashkari’s prediction of only one rate cut in 2024, which was deemed a “reasonable prediction.”
During a June 16 appearance on CBS’s Face the Nation, Neel Kashkari stated, “We need to see more evidence to convince us that inflation is well on our way back down to 2%.” He emphasized the importance of gathering additional inflation data, along with information on the economy and the labor market, before making any decisions.
His remarks diverged from bond traders’ expectations of at least two interest rate cuts in 2024, anticipated for September and November. For instance, the probability of a rate cut in September decreased from 66% over the weekend to 55% on June 18.
This adjustment in rate cut expectations aligns with a rebound in U.S. Treasury yields, where the annual returns on the benchmark 10-year bond (US10Y) have increased by 14 basis points since the start of the weekly session on June 17.
Increased bond yields lower the opportunity cost associated with holding riskier assets such as cryptocurrencies, contributing significantly to the recent decline in the crypto market, including losses observed today.
Bitcoin ETFs Experience Ongoing Outflows Amid Market Trends
These outflows align with an increase in the strength of the U.S. dollar against a basket of major foreign currencies, as indicated by the U.S. Dollar Index (DXY).
A stronger dollar typically indicates reduced risk appetite among investors, contributing to the increased outflows from Bitcoin ETFs and heightened anxiety in the crypto market.
Long liquidations have negatively impacted crypto market bulls.
The crypto market decline has intensified as long liquidations have outweighed short ones over the past 24 hours.
According to Coinglass data, long traders, who bet on the crypto market’s upward movement, experienced approximately $403 million in liquidations during this period. In contrast, short traders faced liquidations totaling over $61 million.
When long positions are liquidated, traders who are betting on price increases are compelled to sell their holdings, often at a loss. This heightened selling pressure has contributed to today’s decline in crypto market valuation.
The question remains: will the trendline support level hold?
Technically speaking, today’s downturn in the crypto market is occurring within the context of a correction within its existing symmetrical triangle pattern. For instance, the market capitalization has decreased by 12.34% after testing the upper trendline of the triangle.
Looking ahead, the crypto market valuation may recover towards the upper trendline after finding support at the lower trendline. This potential move could propel the market cap to approximately $2.48 trillion by June, marking a 9.5% increase from current levels.
On the other hand, a breach below the lower trendline could potentially drive the crypto market cap down towards its 200-day exponential moving average (200-day EMA), currently around $2.09 trillion (represented by the blue wave).
