Why is the cryptocurrency market down today?
The cryptocurrency market is in a downward trend today, with the overall market capitalization down 4.12% to $2.08 trillion on May 1.
Bitcoin (BTC), the largest cryptocurrency by market capitalization, fell 5.76% to about $57,480. Meanwhile, Ethereum (ETH), the second-largest cryptocurrency, was trading down 3.28% at $2,893 at the time of the announcement.
Let’s take a look at why the cryptocurrency market is down today.
Investors go into risk-averse mode ahead of the Federal Reserve’s interest rate decision.
The cryptocurrency market sell-off continued on May 1 as market participants awaited the Federal Reserve’s interest rate decision and comments from Federal Reserve Chairman Jerome Powell following the FOMC meeting.
Market analysts do not expect the FOMC to make any changes to interest rates as investors are becoming increasingly accustomed to the fact that the U.S. central bank may not cut interest rates at all this year.
As of this writing, traders see a 1% chance of a rate cut on May 1 and 9.4% on June 12, compared to 52.13% in September and 39.2% in November, according to the CME FedWatch tool.
That means market analysts are betting the Fed will keep interest rates steady in May and June, with the first cuts coming later this year.
This outlook is having a negative impact on risk assets such as cryptocurrencies, emerging market stocks, bonds, and even commodities.
In his final speech, Chairman Powell emphasized the ongoing fight against inflation. Given the latest economic data and expectations of a strong jobs report on April 26, it is unlikely that the Federal Reserve will change its stance on quantitative tightening (QT) policy.
Bitcoin ETF outflows continue
Investor risk aversion is evident across Bitcoin exchange-traded funds (ETFs), where investors have been withdrawing capital for several days.
As of May 1, total cumulative flows from these ETFs were $11.942 billion, down about 10% from the local high of $12.925 billion a week ago. Grayscale’s GBTC fund witnessed the highest outflows during the period, primarily due to its high fee structure.
“The Grayscale Bitcoin Trust has sold approximately $17 billion since the Spot ETF was approved and is the only trust with a negative net flow,” independent market analyst Noodles said, adding, “This is absolutely ridiculous.”
In particular, inflows into BlackRock’s iShares Bitcoin Trust (IBIT) have plateaued since April 24, when the United States released disappointing gross domestic product (GDP) and inflation reports, while inflows into other Bitcoin ETFs have slowed.
“There has been a net outflow of $800 million from Bitcoin ETFs in the last 18 days,” said Capriole Fund founder Charles Edwards, attesting to the scale of withdrawals over the past few weeks.
Related: Is Bitcoin price rebounding to 57K? Here’s why these levels are important:
Over $380 Million in Liquidations Due to Cryptocurrency Market Collapse
The liquidation of long and short positions in the broader cryptocurrency market has further fueled the underperformance of digital assets today.
In particular, the cryptocurrency derivatives market saw over $381.7 million liquidated, of which $370 million was liquidated in the last 24 hours. Liquidation of a long position is usually accompanied by a sale of the asset (either voluntarily or by a broker), which may cause the price to fall further.
Meanwhile, market intelligence firm Santiment said the recent downturn in the cryptocurrency market has led to an increase in “buying” currencies, meaning the bottom may be nearing.
“Bitcoin revisits $60,000 as “Buy the Dip” calls surge and traders become polarized.”
The cryptocurrency data analytics firm said key sentiment indicators show market participants are “excessively panicked,” indicating the downtrend could be coming to an end.
“The overwhelming negative commentary across social media and the significant loss of trading across the network are strong signs that the bottom is approaching.”
This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.
