Cryptocurrency Market Dips Following Ether ETF Approval; Inflation Concerns Add Pressure
Summary:
The cryptocurrency market's net capitalization decreased by over 4.50% in 24 hours to $2.414 trillion on May 24, largely due to declines in Bitcoin and Ether. This happened following the U.S. Securities and Exchange Commission's approval of eight Ether exchange-traded funds, hinting at a "sell-the-news" sentiment among investors. Furthermore, considerable liquidations in the derivatives market have also contributed to the downturn in the market. Additionally, concerns over inflation rates and potential interest rate cuts have also put pressure on the market.
The total value of the cryptocurrency market has seen a decline of more than 4.50% in the last 24 hours, with the net capitalization standing at $2.414 trillion as of May 24. The biggest contributors to these losses are Bitcoin (BTC) and Ether (ETH), which have seen drops around 3.5% and 4% respectively.
The market dropped the day following the U.S. Securities and Exchange Commission's (SEC) approval of eight Ether exchange-traded funds (ETF), indicative of a "sell-the-news" mentality among investors. This phenomenon typically occurs when investors buy ahead of anticipated news, propelling the price in advance. Crypto expert Zach Rynes believes that the market had already factored in the approval, as Ether soared 20% this week, pushing the crypto market up by 5%.
However, the actual initiation of these ETFs is contingent on further regulatory procedures, such as the approval of S-1 filings which explain the finances and risks of the firms offering them. The SEC is currently reviewing VanEck's revised S-1 filing, but this process could span several weeks or months. This delay in proceedings has led to a decreased buying sentiment in the short term within the crypto market. Despite this, Rynes foresees a "massive capital inflow", potentially hitting billions, once Ether ETFs kick off.
The recent downturn in the crypto market is associated with considerable liquidations in the derivatives market, amounting to over $376.63 million, in the past 24 hours. Almost $295.73 million of this total came from long liquidations – bets that the asset's price will increase. When prices drop instead, forced selling happens to mitigate more losses, thereby increasing the selling pressure in the market and driving the prices of cryptocurrencies even lower. This initial price decrease initiated a wave of liquidations, thereby exacerbating the total market drop.
The dip in the crypto market occurred after the Federal Open Market Committee's (FOMC) meeting minutes for April 30-May 1 were revealed on May 22. The minutes disclosed policymakers' apprehensions about the timeline for monetary policy relaxation. Recent data indicates that inflation rates remain high, while showing signs of a downturn on a year-on-year basis. The Federal Reserve's inflation rate target is 2%, but recent indicators display price surges going well beyond this target.
After the Fed minutes were disclosed, bond traders' expectations for a potential interest rate cut in September declined from 51% to 49%. This coincided with an increase in the U.S. 10-year Treasury note yield, from 4.31% to 4.49%. This hike in Treasury yields suggests an anticipation of sustained tighter monetary policy, often leading to higher borrowing costs and decreased liquidity. This can be troublesome for higher risk assets, culminating in a downturn in the crypto market.
This piece does not provide investment advice or recommendations. Every investment and trading decision comes with risk; readers should conduct their own due diligence before making any decisions.
Published At
5/24/2024 4:07:33 PM
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