As a seasoned analyst with over two decades of experience in financial markets, I’ve seen my fair share of market volatility, and today is no exception. The recent dip in the cryptocurrency market capitalization, despite the promising gains made earlier this week, seems to be driven by a combination of factors that are all too familiar in this dynamic environment.
On October 22nd, the overall value of all cryptocurrencies (TOTAL) decreased, erasing the growth achieved over the previous days. This drop in price might be due to investor concerns about potential impacts from the stock market and a robust US dollar causing doubt among traders regarding the likelihood of Federal Reserve interest rate reductions.
In the past day, the overall value of all cryptocurrencies has decreased by about 1.5% to stand at a total of approximately $2.3 trillion. Both Bitcoin (BTC) and Ether (ETH) have experienced declines, with Bitcoin dropping by around 1.6% and Ether experiencing a more significant decrease of roughly 2.8%.
Let’s look at the factors driving the crypto market down today.
Risk-off sentiment pushed the crypto market down
As a researcher, I’m observing a striking similarity between today’s market rally and the recent trend in US equities. The S&P 500, which peaked at an all-time high of 5,878.46 on October 17, has dipped by 0.18% as of October 21. This dip underscores the influence of the declining valuation of America’s largest publicly traded companies.
The Dow Jones index closed 344 points, or 0.8% lower, while the Nasdaq Composite index pulled up 1.4% to close the day at 18,540.01.
During that time, the U.S. Dollar Index (DXY) fortified its position following the opening of Wall Street on October 21. It peaked at a height not seen since early August, registering 103.67.
On the day it was published, the index had begun to decrease from its high point over several months. Specifically, the Richmond Federal Reserve’s Manufacturing Index for October is the sole piece of data that will be made public on Tuesday, October 22nd.
Regarding our current market analysis, the upcoming two-day Federal Open Market Committee (FOMC) meeting on November 6th and 7th remains at the forefront of investors’ attention as they eagerly await the Fed’s decision that will undoubtedly impact our investment strategies.
On November 7th, it’s anticipated that the Federal Reserve of the United States will proceed with further reducing interest rates; however, the pace might not be as swift as the initial 0.5 percentage point reduction that was implemented on September 18th.
Based on information from CME Group’s FedWatch Tool, it appears that the likelihood of a 0.5% interest rate reduction during the FOMC meeting scheduled for November 7 has dropped to zero as of now. Instead, there is an 89.9% chance of a 0.25% rate cut and a smaller 11% probability that rates will remain the same.
Over $200M in liquidations catch crypto traders offside
Over the past day, long cryptocurrency traders who are betting on market rises have experienced approximately $171.2 million in total liquidations. Conversely, short traders, who bet on market declines, faced more than $30 million in liquidations during the same timeframe.
In the past 24 hours, total liquidations related to Ether amounted to approximately $58.8 million. More than $57 million in leveraged long positions were closed out during this period, as per data from CoinGlass.
Over the past day, the cumulative liquidation amount within the broader cryptocurrency market has reached approximately $201 million, and this figure is continuing to grow as I’m being written about.
When trades that anticipate price increases are closed (liquidated), those investors must typically sell off their holdings. This surge in supply can cause the market value of cryptocurrencies to decrease on any given day.
Simultaneously, the drop in open interest suggests fewer active future contracts being held, as it appears that traders are wrapping up their positions and choosing to exit the market for now.
Despite this, the majority of well-known cryptocurrencies, such as Bitcoin and Ether, have favorable funding rates, suggesting that traders continue to be optimistic, as they are prepared to spend more to sustain long positions.
Weakening market structure points to more losses
Looking at the technical aspect, the combined market value (TOTAL) of all cryptocurrencies generally follows a declining parallel channel pattern that started in March 2024 and continues to shape its trading behavior.
On October 21, the rally surpassing $2.35 trillion didn’t manage to pierce through the upper limit of the downward trending channel at $2.36 trillion. If the daily candlestick closes beneath this point, it might suggest a potential resumption of the correction, which could lead the bulls to search for support at the middle boundary of the channel, around $2.06 trillion, as demonstrated in the weekly chart provided below.
As a researcher, I’m projecting a potential decrease in TOTAL’s value. If my projections are correct, it could dip towards the underlying chart pattern’s support line, which is approximately $1.89 trillion. This would signify a 17% drop from our current position.
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2024-10-22 12:33