The cryptocurrency market has experienced a noticeable downturn recently, with total market capitalization decreasing by 0.91% to approximately $2.77 trillion as of March 27. This is a stark contrast to its week-to-date high of around $2.86 trillion, raising questions about the underlying causes of this decline.
Several factors have contributed to this recent drop in crypto prices:
- The escalation of trade tensions impacting overall risk sentiment.
- Liquidations of overleveraged futures positions.
- A prevailing bearish technical setup in the market.
Impact of Trade Wars on Cryptocurrency Sentiment
Rising global trade tensions are at the center of the current cryptocurrency market decline.
- On March 25, the U.S. government announced a 25% tariff on auto imports and other goods from Canada, Mexico, and China, effective April 3.
- These protectionist measures reignite fears of a global economic slowdown, adversely affecting market sentiment across various asset classes.
- The S&P 500 index, for instance, has fallen nearly 1.85% since the announcement.
Concerns About Inflation & Interest Rates
Concerns over renewed inflation are rising as tariffs are set to increase consumer prices on essential goods. According to St. Louis Fed President Alberto Musalem, these developments could lead to higher inflation rates.
As a consequence, market expectations for rate cuts have diminished, with the odds of a 25 basis point rate decrease now down to 58%, compared to 62.5% a week earlier. This shift is resulting in significant selling pressure on major cryptocurrencies, including Bitcoin and Ether, as they typically trade in correlation with risk markets.
Liquidation Trends May Indicate Further Downturn
Recent market activity shows a stark absorption of liquidations, with long liquidations outpacing shorts across most top cryptocurrencies. This dynamic is intensifying the current sell-off.
- Bitcoin, which constitutes over 61% of the total crypto market cap, has seen $62.45 million in net liquidations over the past 24 hours, predominantly from long positions.
- Ether is not far behind, suffering more than $43 million in long liquidations out of a total of $51.76 million.
The overall statistics indicate that in the last 24 hours, total crypto market liquidations reached $257.35 million, with $198.11 million arising from long positions. This high level of liquidation suggests that many traders had entered into long positions in hopes of a sustained upward trend, only to be caught off guard by the abrupt shift in sentiment.
Market’s Technical Setup Suggests Potential Breakdown
Technical analysis reveals that the crypto market may be on the verge of another downturn, with a rising wedge pattern indicating a potential bearish reversal.
- This pattern often signals declining price action, particularly evident during prevailing downtrends.
- As the total market cap hovers below $2.78 trillion, a crucial support level is poised at around $2.75 trillion.
A confirmed breakdown could see the crypto market capitalization plunge towards $2.54 trillion, reflecting the bearish implications of the wedge’s height. Current trends, including diminishing volume and the failure of bullish efforts to overcome the 50-day and 200-day exponential moving averages, indicate that the path of least resistance may very well be downward.
This post does not constitute investment advice or recommendations. Every investment and trading decision entails risks, and it is advised that readers conduct thorough research prior to making financial decisions.
