Why is the crypto market down today?
The cryptocurrency market took a hit today, with the total market capitalization down around 6.3% to $3.35 trillion on January 8, as strong US economic data signaled an interest rate hike.
24-hour execution of large-cap cryptocurrencies. Source: Coin360
Let's take a closer look at the reasons why the crypto market is falling today.
Bitcoin leads the market crash.
Today's decline in the crypto market is part of a correction that began in New York trading hours on January 7 when Bitcoin (BTC) missed the $100,000 mark, as two stronger-than-expected US economic data releases halted its early-year momentum. crypto assets.
BTC price fell as much as 6.35% to an intraday low of $05,279 on January 8. The pioneer cryptocurrency's decline has sparked panic among crypto investors, with prices falling across the board.
Ether (ETH) lost all of its gains over the past seven days, hitting a low of $3,300 on January 8, recording a 10% loss over the past 24 hours.
Performance of the top 10 largest cryptocurrencies by market value. Source: CoinMarketCap
Other top cryptocurrencies posting significant losses on December 16 were Dogecoin (DOGE), Cardano (ADA), and Solana (SOL), which were down 12%, 11.7%, and 10%, respectively.
The sharp decline in prices wiped out about $631 million in long positions in bullish derivatives markets, according to CoinGlass, marking the first big gain of the year. An estimated $111 million worth of long BTC positions were liquidated on the day.
Total crypto liquidity. Source: CoinGlass
A similar move was seen in the derivatives market on December 18 when more than $844 million of long positions were lost. These liquidations go hand in hand with a 12% drop in TOTAL – the total market capitalization of all cryptocurrencies with over $1.2 billion in crypto market losses.
The predominance of long-term liquidity suggests that the crypto market is overextended following strong US economic data, mainly due to profit-taking and risk-off mode.
Strong US economic data triggers risk-off mode.
The ongoing correction in the crypto market reflects the weakness seen in US stocks. The S&P 500 fell 1.1% to close at 5,509.03 on January 7, while the Nasdaq composite index fell 375 points.
The Dow Jones Industrial Average posted its second straight daily loss, falling 0.61% to close the trading day at 42,528.36 on January 7.
“The S&P 500 is now down 75 points, erasing its year-to-date gains,” capital markets analyst The Kobeisi wrote in a letter to the market's response to economic data releases.
“More than $625 billion in market value was wiped off the stock market today.”
US Stocks 24-Hour Performance Source: Financial Perspectives
The strong data led investors to further reduce their expectations for a rate cut by the Federal Reserve in 2025. This affects investors' sensitivity to risky assets such as cryptocurrencies.
Market participants' 95% probability of interest rates remaining unchanged at the central bank's Jan. 29 meeting rose from 90.4% a week ago and 62.7% a month ago, according to CME's FedWatch tool.
Fed target rate odds for January 29 FOMC meeting. Source: CME Group
Highlighting further, the odds of a rate cut in March and May are below 50%, 37% and 42% respectively.
Crypto market 50 SMA is moving to resistance
The crypto's recent decline has seen TOTAL – the market capitalization of all cryptocurrencies – miss the 50-day simple moving average (SMA) support at $3.35.
Additionally, today's crypto market crash is preceded by a bearish divergence between the price and relative strength index (RSI) as shown in the chart below.
Specifically, TOTAL rose between November 5 and December 31, creating a series of record lows. However, at the same time, the daily RSI dropped, forming lower lows.
Total/Dollar Daily Chart. Source: Cointelegraph/TradingView
The gap between the rising price and the falling RSI indicates growing weakness, prompting traders to sell higher in the area.
If the sell-off consolidates, the crypto market could move upwards towards the $3.18 trillion support. Note that this line has been operating in support of TOTAL since the November 5th US election.
On the other hand, a resurgence of buying pressure could push the crypto market above the 50-day SMA and towards the domestic high of $3.54 trillion reached on January 6.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
