This week's significant correction in the cryptocurrency market is the result of a combination of various factors, which can be summarized as the joint ignition of 'internal' and 'external' causes.
1. Direct Trigger: The 'Domino Effect' of High-Leverage Markets
The market accumulated an unprecedented amount of leveraged long positions during the rise over the past few weeks. When prices began to show slight declines, it triggered forced liquidations of high-leverage positions. These forced liquidations (liquidations) themselves generate enormous selling pressure, further driving down prices and leading to more positions being liquidated, creating a vicious cycle of 'decline → liquidation → further decline'. At one point this week, the total liquidation amount across the network exceeded $1.7 billion within 24 hours, the vast majority of which were long positions, representing the most direct driving force behind the market's rapid decline.
II. Change in macro environment: Weakening support from funding
1. Adjustment of Federal Reserve policy expectations: The 'Federal Reserve rate cut' expectations that previously supported the market have been digested, and recent data show that the U.S. economy still has resilience, leading to a cautious expectation regarding the magnitude and pace of rate cuts by the Federal Reserve this year. The attractiveness of risk assets (including cryptocurrencies) has relatively declined.
2. Pressure of capital outflows: As an important channel for traditional capital to enter the market, the U.S. Bitcoin spot ETF has seen a significant net outflow this week. This indicates that some institutional investors or large funds are either taking profits or temporarily withdrawing, bringing real selling pressure to the market.
III. Internal market factors: Profit-taking and shift in sentiment
1. Technical correction demand: After several months of significant increases, the cryptocurrency market has a strong demand for technical corrections. Many investors choose to sell near key resistance levels to lock in profits.
2. The decline of the 'altcoin season': Previously, altcoins that had seen significant increases have dropped far more than Bitcoin in this round of decline, indicating a sharp decrease in market risk appetite, with capital withdrawing from high-risk areas.
In summary, this week's decline is a 'stress test' caused by the internal overheating leverage of the market (internal factors) and the tightening of the external macro funding environment (external factors). It reminds investors that maintaining a sense of risk is crucial during market exuberance. Going forward, close attention should be paid to global macroeconomic dynamics, ETF capital flows, and changes in the overall market leverage ratio.
