My Dear Readers,
The cryptocurrency market experienced a significant decline today, with the total market capitalization dropping by over 4.30% to about $2.50 trillion on June 18. This downturn has left many investors puzzled about the main reasons behind this drop and the potential for recovery.
Fed Official's Rate Cut Projections
The crypto market's decline is part of a broader correction that began over the weekend. Minneapolis Federal Reserve chief Neel Kashkari predicted only one rate cut in 2024.
“We need to see more evidence to convince us that inflation is well on our way back down to 2%”
Kashkari stated during a June 16 telecast on CBS’s Face the Nation.
He added, “We’re in a very good position right now to take our time, get more inflation data, get more data on the economy, on the labor market, before we make any decisions.”
Kashkari's comments contrasted with bond traders' expectations of at least two interest rate cuts in September and November 2024. Consequently, the target rate probabilities for the September rate cut dropped to 55% on June 18 from 66% over the weekend.
Rising Bond Yields and Crypto Impact
The lower rate cut expectations coincided with a rebound in U.S. Treasury yields. The annual returns on the benchmark 10-year bond (US10Y) rose 14 basis points since the weekly session opened on June 17.
Higher bond yields reduce the appeal of holding riskier assets like cryptocurrencies, contributing to the market's decline this week.
Continued Bitcoin ETF Outflows
The market decline is also influenced by a de-risking strategy adopted by Bitcoin exchange-traded fund (ETF) traders and investors.
U.S.-based spot Bitcoin ETFs saw a 3.65% drop to around $15.10 billion in holdings in the week ending June 14. This outflow trend continued this week, with $145.90 million worth of withdrawals on June 17, reducing the net ETF reserves to $14.956 billion.
Impact of Long Liquidations on Crypto market
Crypto market liquidation heatmap. Source: Coinglass
The crypto market has declined sharply due to long liquidations overpowering shorts in the past 24 hours. Coinglass data shows long traders faced around $403 million in liquidations, while short traders lost over $61 million. This selling pressure from liquidated long positions has lowered the crypto market's valuation today.
Looking Ahead
As the crypto market navigates these challenges, investors remain cautious. The interplay between Federal Reserve policies, bond yields, and ETF movements will continue to shape the market's trajectory in the coming weeks. Understanding these factors is crucial for anticipating potential recoveries or further declines in the cryptocurrency landscape.
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