Why did the cryptocurrency market plummet today? Is there hope for the future?

Why did the cryptocurrency market fall today? Cryptocurrency markets fell today as uncertainty over U.S. market conditions and outflows from spot Bitcoin ETFs exacerbated the current sell-off. The cryptocurrency market took a big hit on July 4, with the total market capitalization falling by more than 5.7% to approximately $2.114 trillion. The plunge has many market participants questioning the core catalysts behind the recession and how long it will last.

The cryptocurrency market continued to plummet on July 5th. Is cryptocurrency still worth investing in in the future? Let’s learn more about it with the editor of this site!

Total market capitalization. Source: TradingView

Let’s take a look at the factors that contributed to the decline in the cryptocurrency market today.

U.S. economic uncertainty hurts cryptocurrency market

Investor uncertainty about U.S. inflation and interest rates is also weighing on cryptocurrency prices. Today’s decline in the cryptocurrency market is part of a correction that began on July 1 after Federal Reserve Chairman Jerome Powell’s recent speech reduced the possibility of a rate cut in 2024.

Powell explained that the Fed needs more convincing data to justify lowering interest rates - a key move that cryptocurrency investors are watching.

According to Reuters, Powell said in a speech on economic and monetary policy at an event in Portugal that the central bank wanted to "understand whether the level of inflation we are seeing truly reflects the actual situation of underlying inflation."

Investors are expecting two or more rate cuts this year, and as of this writing, the Federal Reserve’s Federal Open Market Committee (FOMC) cut rates at its September meeting, according to data from CME Group’s FedWatch tool The probability is still about 65%.

Probability of the Federal Reserve’s September 18th FOMC meeting target interest rate. Source: CME Group

Trading resource Kobeissi Letter said in a response on the But latest Fed guidance says there will be only one rate cut ”

Bitcoin ETF outflows continue

Today’s cryptocurrency market decline further reflects the de-risking strategies adopted by spot Bitcoin exchange-traded fund (ETF) traders and investors. .

Notably, the U.S. spot Bitcoin ETF saw a net outflow of $37.3 million in the week ended June 28. The outflow trend continued this week, with investment vehicles seeing outflows of $13.7 million on July 2 and $20.5 million on July 3, respectively, bringing net ETF reserves to $14.62 billion, according to data from Farside Investors.

Cumulative inflows of spot Bitcoin ETF. Source: Farside Investors

The outflows coincide with accelerating long liquidations in the derivatives market, with long liquidations outweighing short liquidations over the past 24 hours.

Long traders (those who bet on a rise in the cryptocurrency market) have experienced a total of $339.59 million worth of liquidations in the past 24 hours, according to data from Coinglass. In comparison, short traders suffered over $69.35 million in liquidations during the same period.

Bitcoin (BTC) liquidations reached $121.29 million, with cumulative liquidations of leveraged long positions worth more than $99.51 million, according to CoinGlass data.

Full cryptocurrency liquidation. Source: Coinglass

When long positions are liquidated, traders who bet on price increases are forced to sell their positions, usually at a loss. This increased selling pressure caused cryptocurrency market valuations to move lower today.

Weak market structure signals deeper sell-off

From a technical perspective, today’s cryptocurrency market decline is part of an internal correction to its current descending parallel channel pattern. For example, market capitalization has fallen 19% since the drop from $2.6 trillion on June 7.

The sharp pullback on July 4 caused the total cryptocurrency market capitalization to lose key support levels, including the 200-day exponential moving average (EMA) and the descending channel’s lower trendline, at $2.114 trillion and $2.1 trillion respectively.

Total market capitalization. Source: TradingView

Looking ahead, the RSI at 30 indicates that bears are dominating the market. If sell-side activity continues, cryptocurrency market valuations could fall further toward a $2.0 trillion market in the coming days.

Conversely, a breakout of the intermediate trendline could push the cryptocurrency market cap towards the upper trendline, which is around $2.244 trillion.

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