The Crypto Plunge: A Look at the Factors Behind the Dip
Decline of the Crypto Sphere: Insights into the Top 3 Factors Causing Today's Slump
The crypto market took a tumble after the trading session on Thursday, with Bitcoin hitting a low of $100,470, marking its lowest point since May 8 and a 10% drop from its highest level this year. Here's a breakdown of the key factors that contributed to this fall.
1. Profit Taking and the aftermath of Rally
Bitcoin, along with most altcoins, saw a pullback due to profit-taking among investors after the recent rally. Bitcoin had climbed around 50% from its April low to its May high, with Ethereum leaping 100% during the same period. Smaller coins, such as Dogwifhat and Fartcoin, also surged over 300%. It's not uncommon for cryptocurrencies to retreat following a strong surge, as explained by Ryan Lee, Chief Analyst at Bitget Research:
2. Federal Reserve Policy: Awaiting the Turn
Cryptocurrencies also declined due to growing uncertainty about when the Federal Reserve will start cutting interest rates. Fed Chair Jerome Powell and other officials have indicated they are not in a hurry to cut rates, contrary to some indications from President Trump. Instead, they are closely monitoring the effects of tariffs on inflation and the labor market.
Data released on Friday showed that the economy added 139,000 jobs in May, while the unemployment rate remained unchanged at 4.2%. The U.S. will release updated inflation data on Wednesday next week. If inflation comes in higher than expected, it could signal that the Fed will hold rates higher for longer, putting pressure on crypto prices.
Conversely, a lower-than-expected inflation figure would raise the odds of the Fed cutting rates sooner than anticipated.
3. Geopolitical Uncertainty: Trade Wars and Beyond
Bitcoin and altcoins have also dropped due to ongoing geopolitical tensions involving the United States. The Trump administration recently announced export curbs on key technologies to China. In response, China has withheld the supply of rare earth elements used in multiple industries.
Although Xi Jinping and Trump held a conversation on Thursday, signs still suggest that these trade tensions will persist. Historically, cryptocurrencies and equities typically perform better when geopolitical tensions are minimal. For instance, both markets rallied in May as tensions eased ahead of and following the U.S.-China meeting in Switzerland.
4. Technical Indicators and ETF Outflows
Technical indicators suggest that Bitcoin may be poised for a rebound, potentially reaching a new all-time high. The daily chart shows that BTC found support at the 50-day moving average and is beginning to form a bullish engulfing pattern. It's also shaping the handle portion of a cup-and-handle pattern, a popular bullish continuation setup. Depending on how this pattern plays out, Bitcoin's projected target could be around $144,000. Most altcoins are likely to follow suit in a rebound.
Simultaneously, significant outflows from Bitcoin ETFs have added to the bearish sentiment, contributing to the market retreat.
5. Massive Liquidations and Overleveraged Positions
Overleveraged positions in the crypto market led to massive liquidations, amplifying the selling pressure. This was particularly evident in crypto futures, where long positions were heavily liquidated.
- The dip in the crypto market includes a decline in Ethereum's token, as it also experienced a pullback due to profit-taking among investors after the recent rally.
- The Tron blockchain, similar to other altcoins, has also seen a decrease, possibly influenced by the growing uncertainty about when the Federal Reserve will start cutting interest rates.
- The DEcentralized Exchanges (DEX) could potentially benefit from the current crypto plunge, as investors might seek alternative platforms for trading during times of market volatility.
- Some investors might consider this crypto downturn as an opportunity for Investing, especially if they believe that technology-driven crypto finance, such as Bitcoin, will rebound and reach new all-time highs.
- In the aftermath of the crypto plunge, tokens based on the Ethereum network and other altcoins could witness increased adoption as investors search for undervalued projects in the market.
