Crypto markets faced significant selling pressure on Tuesday, as a combination of macroeconomic worries and forced liquidations drove a sharp downturn, particularly impacting optimistic leveraged bets.
📉 What Happened: A Leveraged Washout
The downturn was severe, with **over $1.68 billion in leveraged crypto positions liquidated** within 24 hours, affecting roughly 267,000 traders. The vast majority of this pain (about 93%) hit *long* positions—bets that prices would rise. Bitcoin and Ethereum led the damage, seeing approximately $780 million and $414 million in liquidations respectively.
This kind of cascade occurs when falling prices force the automatic closure of leveraged bets, which in turn creates more selling pressure.
🧠 Why It Happened: More Than Just Crypto
The trigger was rooted in traditional finance. A hotter-than-expected U.S. Producer Price Index (PPI) report showed persistent inflation, especially in services. This data made investors quickly recalibrate their expectations for Federal Reserve interest rate cuts, now seeing the first cut likely in June rather than sooner.
· Market Reaction: This shifted the macro backdrop. Expectations for fewer Fed cuts typically support a stronger U.S. dollar and higher real yields, which historically create headwinds for speculative assets like Bitcoin.
· Compounding Pressures: Other factors added stress. The market cap of major stablecoins fell by $2.24 billion in ten days, indicating capital leaving the crypto ecosystem rather than waiting on the sidelines. Selling pressure from U.S. investors was also notably high.
🔭 Market Outlook and Historical Context
Analysts note the sell-off was more about "leverage breaking" than a fundamental shift to bearish sentiment, as overly crowded long bets were flushed out.
Looking ahead, all eyes are on the Federal Reserve's preferred inflation gauge (PCE), due February 20, which will heavily influence the rate cut timeline. Despite the current stress, some historical data offers a different perspective: over the past 13 years, February has been a positive month for Bitcoin 9 times, with an average gain of +14.3%.
Key Levels to Watch
· Bitcoin (BTC): The $80,600 - $82,000 zone is critical immediate support. A failure to hold could see moves toward $81,833 or lower. For a bearish trend to be negated, a recovery above $93,000 is needed.
· Ethereum (ETH): Trading in the $2,900-$3,200 range, it remains a core holding for many but faces similar macro headwinds.
In short, today's decline was a sharp reminder of crypto's volatility and its sensitivity to global macroeconomic forces. While the liquidation flush may have removed some market excess, the path forward largely depends on inflation data and central bank policy.