Key Takeaways:
On Tuesday, the cryptocurrency market suffered a brutal price correction, resulting in significant losses for major assets like Bitcoin (BTC) and Ether (ETH) amid concerns about the global economy and lower summer liquidity.
Bitcoin and Ether Drop to Lowest Level Since Mid-May as Market Struggles
Bitcoin – the world’s largest cryptocurrency by market capitalization – saw its value drop by 3% to $64,680, erasing the gains from previous trading sessions. This is the first time the apex crypto asset has fallen below the $65,000 mark since mid-May.
Similarly, Ether (ETH), the second-largest digital currency by market cap, plunged 4% and was trading as low as $3,401 yesterday. Other altcoins suffered much bigger losses. Ripple (XRP) was down 6%, Solana (SOL) slid 7%, and popular memecoin DOGE tumbled 11% within the last 24 hours.
BTC had been battling the $70,000 threshold ever since hitting a new all-time high of $73,797 on March 14th. It did test that level in the first week of June, only to be down 4% for the month and 9% for the quarter.
What is the Reason Behind the Latest Crypto Market Crash?
According to blockchain analytics firm CryptoQuant, on-chain data suggests that traders have been reducing their Bitcoin holdings since it touched the $70,000 mark in late May. This is also evidenced by a significant reduction in BTC positions held by US-listed asset managers.
The nine companies that issue spot Bitcoin exchange-traded funds (ETFs) have reduced their holdings by 3,169 BTC, which is approximately $208 million at the current rate. Fidelity and Grayscale have decreased their positions by 1,224 BTC ($80.13M) and 934 BTC ($61.1M), respectively.
Several factors have contributed to the market’s sharp decline this week. Profit-taking has been one of the main causes, as investors look to secure their gains after a period of rise. Meanwhile, net outflows from spot Bitcoin ETFs in the US have added downward pressure on the market.
Geopolitical and Macroeconomic Tensions Cause Traders to Offload Risky Assets Like BTC for the US Dollar
Geopolitical events have also been dictating the market, like the surprise decision by French President Emmanuel Macron to call for early elections after facing heavy defeat in European Parliament elections.
The situation prompted traders to turn towards the US Dollar instead of risky assets like Bitcoin or gold, thereby weakening their price. Traditionally, BTC has an inverse correlation with the dollar.
Furthermore, recent updates from the US Federal Reserve also weighed on the crypto market. Fed Chairman Jerome Powell has signaled a limited interest rate hike environment for 2024. This has dampened investor enthusiasm for BTC and other crypto assets.
The US central bank is expected to announce a rate cut on the dollar borrowing interest in July. In anticipation of the news, massive liquidations were observed in the market, as $245 million in various crypto positions were liquidated in less than 12 hours, including $225 million in long positions. This increased the overall selling pressure.
Markets Could be in for a Parabolic Run Over the Next Few Months
Marko Jurina, CEO of decentralized exchange (DEX) Jumper, told CNBC that when traders are “unimpressed” with how the economy or markets are performing, they either sell at a discount to minimize their losses or exit riskier positions while waiting for the uncertainty to “clear up”.
He pointed fingers at the “perfect storm” of weakening global economic conditions, unresolved geopolitical issues, and thinner markets during the summers. Jurina thinks the market moves will likely be parabolic “at least for the next few months” as the US Presidential election plays out and many desk workers are on holiday.
Crypto-related stocks weren’t spared either as Coinbase shares were down 3%, while MicroStrategy dipped 1%.
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