Cryptocurrency Market Drops 3%: Understanding the Core Catalysts Behind the Downturn
The cryptocurrency market took a significant hit on December 18th, with the total market capitalization plummeting by around 3% to approximately $3.65 trillion. This sudden decline has left many investors perplexed, trying to grasp the underlying factors driving this downturn and whether further losses are imminent.
Bitcoin Leads the Market Slump
Today’s crypto market correction is part of a broader trend that began during the late New York trading hours on December 15th when Bitcoin (BTC) tumbled from an all-time high of $108,364 reached on Bitstamp. BTC price dropped as much as 5% to an intra-day low of $103,173 on December 18th.
The decline in BTC triggered panic selling among crypto investors, resulting in a cascade effect across the board, with other top-cap cryptocurrencies also experiencing significant losses. Ethereum (ETH) extended its two-day losses, dipping as low as $3,800 on December 18th, marking 4% losses over the last 24 hours.
Other Top-Cap Cryptocurrencies Post Significant Losses
Dogecoin (DOGE), Cardano (ADA), and Tron (TRX) also posted notable losses, with DOGE down by 3.4%, ADA down by 3.4%, and TRX down by 6% respectively.
Massive Liquidations Across the Derivatives Market
Data from CoinGlass reveals 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 9th 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 over $400 billion being wiped off the crypto market.
Predominance of Long Liquidations
A predominance of long liquidations suggests that the crypto market was heavily leveraged on the bullish side, primarily due to profit-taking and risk-off mode ahead of today’s Fed decision on rate cuts. This has led to a sell-off in the market, with investors rushing to liquidate their positions.
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 17th, 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 17th at 43,339.
Impact of Interest Rate Cuts
This performance highlights the impact of interest rate cuts on the valuation of the largest companies listed on stock exchanges in the United States. The 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.
Fed Outlook
The Kobeissi Letter noted that ‘Meanwhile, CPI, PPI, and PCE inflation are all back on the rise as the labor market weakens.’ They added, ‘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 Market Capitalization
The consistent rise in TOTAL also led to overbought conditions for most of the period between November 11th and December 8th, when the RSI moved above 70, occasioning a correction as buyer exhaustion and profit-booking set in.
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 11th.
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 16th.
Disclaimer
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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Why the Crypto Market is Dropping 3%: Key Takeaways
- The total market capitalization plummeted by around 3% to approximately $3.65 trillion on December 18th.
- Bitcoin (BTC) tumbled from an all-time high of $108,364 reached on Bitstamp, triggering panic selling among crypto investors.
- Other top-cap cryptocurrencies also experienced significant losses, with Ethereum (ETH), Dogecoin (DOGE), Cardano (ADA), and Tron (TRX) down by 4%, 3.4%, 3.4%, and 6% respectively.
- Massive liquidations across the derivatives market totaling $419 million were seen over the last 24 hours, with a predominance of long liquidations suggesting heavy leverage on the bullish side.
- The ongoing correction in the crypto market mirrors the weakness witnessed in US equities, with interest rate cuts playing a significant role in the valuation of the largest companies listed on stock exchanges.
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