A significant part of the current downturn in the crypto market is tied to the anticipation of U.S. inflation data (CPI) and upcoming interest rate decisions, but that's not the only reason. Several factors are simultaneously pressuring the market:
Fear of persistently high interest rates
The markets are starting to expect that the U.S. Federal Reserve will keep interest rates high for a longer period due to ongoing inflationary pressures. When rates rise or stay elevated, funds tend to flow into bonds and the dollar instead of high-risk assets like cryptocurrencies.
Reuters
Intense anticipation for inflation data.
Investors are lightening their positions ahead of key inflation data, as any reading higher than expected could trigger a new sell-off in crypto and stocks.
Wall Street Journal
Geopolitical tensions.
Tensions in the Middle East have raised fears of a return of inflation through rising energy prices, putting more pressure on risky assets.
Reuters
Liquidity is flowing out of Bitcoin ETF funds.
Some Bitcoin spot funds have seen outflows recently, negatively impacting overall market sentiment.
CoinStats
Liquidation of leveraged positions.
As the drop began, billions in leveraged long positions were liquidated, exacerbating the decline.
CoinDesk
Currently, it seems that part of the drop is a preemptive move ahead of the inflation data, as many traders sold or reduced their positions before the data release, fearing a negative surprise. Therefore, it's not necessary for the market to drop after the news; sometimes the opposite happens entirely: 'Buy the rumor, sell the news' or 'Sell the fear, buy the news.'
Market Watch
Regarding analysts' forecasts:
If the inflation data comes in lower than expected or in line with forecasts, we might see a quick bounce in Bitcoin and then altcoins, as the market is currently pricing in a lot of monetary tightening already.
Yahoo Finance
If the data comes in clearly higher than expected, we might see an initial sell-off due to increased expectations of higher interest rates being maintained or even raised later.
Yahoo Finance
But can it drop and then bounce back on the same day?
Yes, and this is one of the most common scenarios:
Data is being released.
Traders are selling in the first few minutes.
Long positions are being liquidated.
Buyers start to step in at support.
The daily market closes up even though the first hour was down.
So personally, I don't rely on the first 15-30 minutes after the news, but rather on the trend of the following hours.
