Why Did the Crypto Market Drop 20% and Bitcoin Drop 5% This Week?
The past week has witnessed significant declines in the cryptocurrency market; overall valuations fell 20% and Bitcoin fell 5%.
This change occurred in an environment where macroeconomic data and global financial indicators contributed to the downward trend.
Crypto Market Reaction to Macroeconomic Indicators
Crypto analyst Michael van de Poppe explained the situation in the market and said that despite the 20% drop in the total market value, things in the market are not as bad as they seem. As Van de Poppe noted, this correction may be forming a ‘higher low’, meaning the overall uptrend is still intact.
A “higher low” is a bullish signal that indicates the market can regain its magic even after a pullback. This pattern may signal that investors are still optimistic about the future and are buying into the market at these low prices in anticipation of future earnings.
The reason for this market trend was cited as recent data, which presented a rather mixed picture of the economic environment. The Consumer Price Index (CPI), one of the key indicators used by the Federal Reserve in policymaking, increased by 3.3%, close to the expected 3.4%.
Similarly, Core CPI, which excludes food and energy, was 3.4%, slightly below the estimated 3.5%. These numbers indicate a slowdown in inflation rates, which is generally a good development for risky assets like cryptocurrencies as it could lead to a drop in interest rates.
In addition, the Producer Price Index (PPI) also reflected this trend and the general figure was 2.2% against the expectation of 2.5%. Annual core PPI was 2.3%, below the expectation of 2.4%. Monthly figures also contracted; This is something that should normally bolster market confidence, and the crypto market did not follow suit.
Federal Reserve Policies
The Federal Reserve’s stance is a crucial factor in ongoing market dynamics. Fed Chairman Jerome Powell gave a surprisingly hawkish speech despite weak inflation data.
Powell’s statements and the change in the interest rate cut predicted for 2024 indicate that the FED is unlikely to be as aggressive as the market expects in easing monetary policy. This has led to a paradox in which the Fed’s cautious approach can negatively impact the market due to low inflation figures, which should theoretically allow interest rate cuts.
Additionally, Treasury bond yields are quite volatile; The yield on two-year bonds fell significantly, reaching a two-month low of 4694%. While these are generally bullish indicators for risky assets like Bitcoin, the strong USD, strengthened by the ECB’s recent interest rate cuts, has put pressure on cryptocurrencies.
Gold Rises While Bitcoin Struggles
The fact that gold, unlike cryptocurrencies, is experiencing an upward momentum further emphasizes the difference in asset behavior under similar economic conditions. Often viewed as a safe-haven asset, gold’s durability may still be pushing investors away from cryptocurrencies, which are perceived as more speculative investments.
Meanwhile, Bitcoin (BTC) price showed a downward trend last week; It dropped 5% from its weekday high of $70,059 to its weekly low of $65,267. At press time. BTC was trading at $66,320, down 1.29% from its 24-hour high.
Source: CoinMarketCap
Major cryptocurrencies are also in decline. For example, the XRP price has decreased by 2% in the last 7 days. However, XRP corrected this, allowing the bulls to take control of the market and is trading at $0.4846, up 1.94% at the time of writing.
The lack of momentum in crypto markets may also be linked to regulatory uncertainties, such as the pending decision regarding the Ethereum ETF. This contributed to the downward pressure, leaving investors cautious.
However, bullish momentum in the ETH market has been reignited with the Spot Ethereum ETF’s updated timeline through July 2. At the time of writing, the Ethereum (ETH) price was changing hands at $66,269, up 2.47% from the 24-hour low of $3,364.
Also read: XRP Price Risk Drops to $0.42 as SEC and Lawyers Fight Surge on Penalties, Injunctions
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Kelvin is a distinguished author specializing in crypto and finance, with a bachelor’s degree in Actuarial Science. Known for her sharp analysis and insightful content, she is fluent in English and specializes in comprehensive research and on-time delivery.
The content presented may contain the personal opinion of the author and is subject to market conditions. Do your market research before investing in cryptocurrencies. Neither the author nor the publication accepts any liability for your personal financial loss.
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