Markets
Why the cryptocurrency market is down 20% and Bitcoin is down 5% this week
The past week has seen significant declines in the cryptocurrency market, with overall valuations dropping by 20% and Bitcoin by 5%.
This shift occurred against a backdrop of macroeconomic data and global financial indicators contributing to bearish sentiment.
Cryptocurrency market reaction to macroeconomic indicators
Cryptoanalyst Michael van de Poppe explained the situation occurring in the market and said that despite the 20% drop in total market capitalization, things in the market are not as bad as they seem. As pointed out by van de Poppe, this correction could form a “higher low”, meaning that the overall bullish trend is still intact.
A “higher low” is a bullish signal indicating that the market may regain its mojo even after a retracement. This pattern may signal that investors are still optimistic about the future, buying into the market at these lower prices in anticipation of future gains.
Recent data releases which gave a rather mixed picture of the economic environment have been cited as the reason for this market trend. The consumer price index (IPC), a key indicator used by the Federal Reserve in decision-making, rose 3.3%, close to the 3.4% expected.
Likewise, the Core CPI, which excludes food and energy, came in at 3.4%, slightly lower than the 3.5% expected. These figures indicate a slowdown in inflation rates, which is generally positive for risky assets like cryptocurrencies, as they can lead to a reduction in interest rates.
Furthermore, the producer price index (PPI) also reflects this trend, standing overall at 2.2% against the expected 2.5%. Year-over-year core PPI came in at 2.3%, lower than the expected 2.4%. Monthly data also contracted, which would normally boost market confidence, and the cryptocurrency market did not follow suit.
Federal Reserve policies
THE Federal ReserveThe location of is a crucial factor in the ongoing market dynamics. Federal Reserve Chair Jerome Powell gave a surprisingly hawkish speech despite weaker inflation data.
Powell’s statements and the change in rate cuts planned for 2024 indicate that the Fed will likely not be as aggressive as the market expected in easing monetary policy. This has led to a paradox where, due to lower inflation data that should theoretically allow for rate cuts, the Fed’s cautious approach could have a negative impact on the market.
Additionally, Treasury bond yields have been quite volatile; the yield on two-year bonds fell significantly, hitting a two-month low of 4694%. While these are generally bullish indications for risky assets like Bitcoin, the strong USD, which has been strengthened by recent ECB rate cuts, has put cryptocurrencies under pressure.
Gold Rises as Bitcoin Struggles
Unlike cryptocurrencies, gold has seen bullish momentum, further highlighting the divergence in asset behavior under similar economic conditions. The resilience of gold, often seen as a safe haven, could draw investors away from cryptocurrencies, which are still perceived as more speculative investments.
In the meantime, That of Bitcoin (BTC) has seen a bearish rally over the past week, falling 5% from a midweek high of $70,059 to a weekly low of $65,267. As of press time. BTC traded at $66,320, down 1.29% from its 24-hour high.
Source: CoinMarketCap
Major cryptocurrencies also suffered a decline. THE XRP Price, for example, has seen a decline of 2% in the last 7 days. However, XRP corrected this issue allowing the bulls to take control of the market and thus rally 1.94% to trade at $0.4846 at the time of writing.
The lack of momentum in cryptocurrency markets can also be linked to regulatory uncertainties, such as the pending Ethereum ETF decision. This has left investors cautious, contributing to bearish pressure.
However, bullish momentum has reignited in the ETH market with the updated timeline for a Ethereum spot ETF by July 2nd. At the time of writing, Ethereum (ETH) price was trading at $66,269, up 2.47% from its 24-hour low of $3,364.
Read also: XRP Price Risks Drop to $0.42 as SEC, Lawyers Defy Fines, Injunctions