Cryptocurrency Market Plunges Due to Predicted Rate Cut and Increasing U.S. Treasury Yields
Summary:
The cryptocurrency market experienced a significant decline of over 4.30% on June 18 due to a combination of factors. These include a predicted solitary rate cut by Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, an increase in U.S. Treasury yields, a stronger U.S. dollar, and the continued outflow from Bitcoin exchange-traded funds (ETFs). Notably, long traders faced about $403 million worth of liquidations in the past 24 hours. The future market rebound largely depends on the behavior within the current symmetrical triangle pattern.
On June 18, the cryptocurrency market experienced a significant decrease of more than 4.30%, bringing the total market capitalization to approximately $2.50 trillion. This sudden downturn leaves market participants seeking answers to the causes and attempting to determine if there will be a bounce back soon.
The recent decline in the cryptocurrency market is part of a larger corrective action that commenced over the weekend following a prediction by Neel Kashkari, President of the Federal Reserve Bank of Minneapolis. He speculated a solitary rate cut in 2024, diverging from the bond trader's expectations of at least two rate cuts in 2024.
Kashkari stated on CBS’s Face the Nation on June 16, that they need to have assurance that inflation is decreasing back to 2%. He further added that it's best to wait, collect more inflation and economic data before making decisions. Such statements were counter to bond traders who expected cuts in September and November. For instance, the likelihood of a September rate cut decreased from 66% to 55% on June 18.
The decrease in rate cuts expectations coincides with an increase in U.S. Treasury yields. These higher yields lessen appeal of holding riskier assets such as cryptocurrencies, which is why there's a substantial decline in the cryptocurrency market this week.
The decreasing cryptocurrency market is also fueled by a de-risking strategy implemented by Bitcoin exchange-traded fund (ETF) traders and investors. Notably, the U.S.-based Bitcoin ETFs saw their holdings decrease by 3.65% in the week ending June 14. The ebbing trend continued this week, with a withdrawal of $145.90 million worth on June 17.
These withdrawals correspond with an augment in the U.S. dollar's strength compared to other leading foreign currencies. This often signifies a lower risk appetite among investors, contributing to the outflow from Bitcoin ETFs and subsequent decline in the cryptocurrency market.
The last 24 hours have seen long liquidations surmounting over short ones, exacerbating the decline in the cryptocurrency market. In this period, long traders had to face approximately $403 million worth of liquidations compared to $61 million for short traders.
In terms of technical analysis, the recent drop in cryptocurrency market can be viewed as a correction within a symmetrical triangle pattern. The market capitalisation has decreased 12.34% after testing the upper trendline of the triangle as support.
Looking ahead, the crypto market might rebound to the upper trendline after reaching the lower trendline as a support. On the other hand, if it falls below the lower trendline, the market cap could crash towards its 200-day exponential moving average (200-day EMA), which sits at approximately $2.09 trillion.
Published At
6/18/2024 12:27:05 PM
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