Crypto Market Downturn: Analysts See Silver Lining Amid Investor Risk-Off Approach
Summary:
The cryptocurrency market has seen a significant drop, with Bitcoin and Ether experiencing a decline in market value. This downturn is attributed to the risk-off approach adopted by investors ahead of the Federal Reserve's interest-rate decision. Analysts predict that rates will hold steady in May and June, affecting risk-on assets such as cryptocurrencies. The market downturn has been compounded by ETF outflows and over $380 million in liquidations across the crypto market. Despite this downward trend, increased "buy-the-dip" calls and signs of panic among market participants suggest the downturn may soon bottom out.
Today, the market for digital currencies is experiencing a downturn, as the overall market capitalization drops by 4.12%, equaling $2.08 trillion, as of May 1. The most traded cryptocurrency, Bitcoin (BTC), has seen its value decrease by 5.76%, currently hovering around $57,480. The second most prominent crypto, Ether (ETH), has slumped 3.28% to trade at approximately $2,893 at the time of reporting. Let's dive into why this downward trend is occurring throughout the digital currency market today.
Ahead of an announcement by the Federal Reserve regarding its interest rate decision, investors have switched to a risk-off approach. On May 1, the continued crypto market slump was evident as participants braced for the Fed's decision and the comments from Fed Chair Jerome Powell following the FOMC meeting.
Analysts don't anticipate the FOMC will instigate changes to the interest rates, with more and more investors coming to terms with the possibility that there may be no cuts from the U.S central bank this year. Based on the CME FedWatch device, traders are currently placing a 1% bet on a rate cut on May 1 and a 9.4% bet on June 12, compared to a 52.13% bet for September and a 39.2% bet for November. This indicates that analysts predict steady rates in May and June, with the first potential cut projected for later in 2021.
This projection is negatively impacting 'risk-on' assets, including cryptocurrencies, emerging market securities, bonds, and even commodities.
During his most recent address, Powell talked about the ongoing fight against inflation. Given the current economic indicators and the expectations for a solid employment report on April 26, the likelihood of Fed altering its stance on its QT policies seems low.
Investors withdrawing from ETFs also signals the risk-off sentiment. As of May 1, these ETFs have witnessed an approximately 10% drop in total cumulative flow from their high of $12.925 billion a week prior. The Grayscale GBTC fund has endured the highest outflow during this timeframe, largely due to its higher fee structure.
Importantly, inflows into other Bitcoin ETFs have ceased, with BlackRock's iShares Bitcoin Trust experiencing a standstill since April 24 in the wake of the U.S's disappointing GDP and inflated inflation report.
Alongside the crypto market crash came over $380 million in liquidation of long versus short positions across the broader crypto market, contributing to today's underperformance of digital assets. Most notably, the crypto derivatives market saw over $381.7 million worth of liquidations in the past 24 hours, with $307 million of those being long. Such liquidations generally involve selling off the asset which can further drive down the price.
According to market intelligence firm Santiment, the recent dip in the crypto market has seen a boost in "buy-the-dip" calls, which may signal that the bottom is near. Also, data analytics firm remarks that a large volume of negative commentary on social media, coupled with sizeable losses in transactions across the network, are strong signs that the market may descend further.
Please note, this article doesn't provide investment advice or recommendations. All investments and trading actions come with risks, and readers must do their own thorough research before making any decisions.
Published At
5/1/2024 9:15:32 PM
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