The cryptocurrency market has taken a significant hit today, with the total market capitalization dropping by around 3% to approximately $3.65 trillion on December 18.
Factors Behind the Downturn
Let’s take a closer look at the factors driving the crypto market down today.
Bitcoin Leads the Market Slump
Today’s crypto market decline is part of a correction that started during the late New York trading hours on December 15 when Bitcoin (BTC) tumbled from an all-time high of $108,364 reached on December 17 on Bitstamp. BTC price dropped as much as 5% to an intra-day low of $103,173 on December 18.
The decline in BTC triggered panic selling among crypto investors, with cryptocurrencies dropping across the board. Ethereum (ETH) extended its two-day losses, dipping as low as $3,800 on December 18, marking 4% losses over the last 24 hours.
Other top-cap cryptocurrencies posting significant losses on December 16 are Dogecoin (DOGE), Cardano (ADA), and Tron (TRX), which are down 3.4%, 3.4%, and 6%, respectively.
Massive Liquidations Across the Derivatives Market
Data from CoinGlass shows that a total of $419 million have been liquidated over the last 24 hours, with $333 million making up long positions. Long BTC leveraged positions totaling $53 million have also been liquidated on the day.
A similar move was seen on December 9 in the derivatives market when more than $1.5 billion long positions were liquidated. These liquidations accompany an 11% drop in TOTAL—the combined market capitalization of all cryptocurrencies—with more than $400 billion being wiped off the crypto market.
A predominance of long liquidations suggests that the crypto market was overleveraged on the bullish side, primarily due to profit-taking and risk-off mode ahead of today’s Fed decision on rate cuts.
Risk-Off Sentiment Pushes the Crypto Market Down
The ongoing correction in the crypto market mirrors the weakness witnessed in US equities. The S&P 500 dropped by 0.4% to close the day at 6,050.61 on December 17, while the Nasdaq composite index declined by 64 points.
The Dow Jones index clocked its ninth consecutive daily loss, its longest losing streak since 1978, losing 0.61% to close the trading day on December 17 at 43,339.
This performance highlights the impact of interest rate cuts on the valuation of the largest companies listed on stock exchanges in the United States.
Focus Shifts to Fed Decision
Tomorrow marks the final Fed meeting of 2024,’ declared capital markets commentator The Kobeissi Letter in a December 17 post on X. As such, market participants have now turned their focus on the US Federal Reserve’s interest rate cut decision later today.
According to data from CME Group’s FedWatch Tool, the odds of the Fed keeping interest rates unchanged are now standing at 4.6% at the time of writing, against 95.4% for a 0.25% rate cut.
A 25 basis points cut will mark the Fed’s third rate cut of 2024, bringing the total reduction to 100 basis points. ‘Meanwhile, CPI, PPI, and PCE inflation are all back on the rise as the labor market weakens,’ The Kobeissi Letter noted, adding: ‘All eyes will be on the Fed’s outlook for 2025 as the fight against inflation is not over yet. The Fed has a tough job ahead.’
TOTAL’s Bearish Divergence
Today’s drop in the crypto market is preceded by a growing bearish divergence between its price and the relative strength index (RSI). Notably, TOTAL rose between November 11 and December 8, leading to overbought conditions for most of the period.
If the selling intensifies, the crypto market will likely drop toward the $3.50 trillion support embraced by the ascending trendline. Note that this line has acted as a dynamic support for TOTAL since November 11.
On the other hand, a resurgence in buying pressure could push the crypto market cap toward its all-time high of $3.73 trillion, reached on December 16.
Conclusion
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
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