The global cryptocurrency market experienced a significant downturn, with the total market valuation falling by approximately 6.3% to roughly $3.35 trillion on January 8. This decline followed strong economic data from the United States, which hinted at potential interest rate hikes.
The market slump was marked by a sharp drop in Bitcoin (BTC) prices, which fell from the $100,000 mark due to robust US economic figures that disrupted the positive momentum in digital assets. On January 8, BTC prices plummeted by 6.35%, hitting an intraday low of $05,279. This decline triggered a wave of panic selling among investors, causing widespread price drops across various cryptocurrencies.
Ethereum (ETH) witnessed a retreat as well, losing all its gains from the past week and dropping to $3,300, a 10% decrease in just 24 hours. Other major cryptocurrencies such as Dogecoin (DOGE), Cardano (ADA), and Solana (SOL) also suffered significant losses, declining by 12%, 11.7%, and 10%, respectively.
The price drop led to liquidations of long positions totaling nearly $631 million across derivative markets, marking the year’s first significant turnover of leveraged positions. Long BTC leveraged bets alone saw $111 million liquidated on the same day.
Previously, on December 18, a similar incident occurred in the derivatives markets, where more than $844 million in long positions were liquidated, coupled with a 12% drop in the total cryptocurrency market capitalization, wiping out over $1.2 billion from the market.
The prevalence of long liquidations indicates that the market was heavily overleveraged on the bullish side, primarily due to profit-taking and a risk-off sentiment driven by the strong US economic data.
This correction in the cryptocurrency market parallels the weakness seen in US equities. On January 7, the S&P 500 fell by 1.1%, with the Nasdaq composite index dropping 375 points. Meanwhile, the Dow Jones index recorded its second consecutive daily loss, declining by 0.61%.
The strong economic data has lowered investors’ expectations regarding potential rate cuts by the Federal Reserve, impacting sentiment towards riskier assets like cryptocurrencies. Expectations for unchanged interest rates at the Federal Reserve’s meeting on January 29 rose to 95%, up from 90.4% a week earlier and 62.7% a month prior, according to CME’s FedWatch tool.
Looking ahead, there is a below 50% chance of rate cuts in March and May, standing at 37% and 42% respectively.
The recent downturn has caused the total combined market capitalization of all cryptocurrencies to lose support from the 50-day simple moving average, which rests at $3.35 trillion. The current drop is also preceded by a bearish divergence between its price and the relative strength index (RSI).
This divergence indicates frailty in the prevailing uptrend, prompting traders to sell at local highs. If selling continues, the market could fall to the $3.18 trillion support level. Conversely, renewed buying pressure could propel the market cap above the 50-day SMA, aiming for the local high of $3.54 trillion recorded on January 6.
This news does not offer investment advice. Investors should conduct their own research before making decisions.
