Why is the crypto market down today?

The cryptocurrency market is down today, with the total market capitalization falling by 5.20% to $2.40 trillion on April 2, its biggest one-day decline in three weeks.

TOTAL crypto market capitalization daily performance chart. Source: TradingView

Bitcoin (BTC), the top cryptocurrency in terms of market capitalization, has led the decline by falling 4.2% to around $66,400 in the last 24 hours. Ether (ETH), the second-largest crypto, has dipped 4.66% to circa $3,560 in the same period.

Top-ranking cryptos and their 24-hour and 7-day price performances. Source: Messari

Let’s explore the reasons why the crypto market is down today.

Risk-off sentiment booms

Bitcoin and the rest of the crypto market have sunk today due to receding bets on looser Federal Reserve monetary policy following stronger-than-expected U.S. manufacturing data.

Notably, on April 1, the U.S. Institute of Supply Management reported a 2.5% increase in their manufacturing index, expanding for the first time since 2022.

U.S. manufacturing PMI performance. Source: Bloomberg

The data followed a drop in expectations for Federal Reserve easing, as reflected in swap contract pricing for this year, which decreased to approximately 65 basis points.

This reduction in easing expectations, coupled with the belief that interest rates will remain high in the near future, prompted a significant rise in the benchmark 10-year U.S. Treasury yield, which surged from 4.18% to 4.33%.

U.S. 10-year Treasury yield daily performance chart. Source: TradingView

When bond yields increase, investors seek higher returns due to expected inflation or interest rate hikes, often signaling a robust economy or stricter monetary policy. This typically leads to reduced risk appetite, prompting investors to avoid riskier assets such as cryptocurrencies.

Source: X

Spot Bitcoin ETF outflows resume

Today, the crypto market’s decline coincides with easing inflows into the U.S. spot Bitcoin exchange-traded funds (ETF). Notably, on April 1, these funds processed $85.7 million worth of withdrawals, according to data provided by Farside Investors.

Bitcoin ETFs daily net flow tracker. Source: Farside 

Easing Bitcoin ETF inflows indicate a decrease in investors’ risk appetite. In uncertain or bearish market conditions, investors might prefer holding cash or investing in more traditional and less volatile assets.

For instance, since the ISM data release, the DXY, which measures the greenback’s strength versus a basket of top foreign currencies, has risen 0.59%.

DXY daily performance chart. Source: TradingView

Overbought correction

Today’s crypto market’s decline is part of a broader correction move that began on March 14 when it established a local peak at around $2.72 trillion.

Related: Highest monthly close ever — 5 things to know in Bitcoin this week

This adjustment follows an escalation in the market’s weekly Relative Strength Index (RSI) above the overbought mark of 70, signaling excessively high valuations and resulting in diminished trader interest. In addition, the historical $2.57-3.02 trillion resistance range has limited the market’s upside attempts.

TOTAL market capitalization weekly performance chart. Source: TradingView

Meanwhile, the Net Unrealized Profit and Loss (NUPL) metric sharply rose into Belief (blue) territory. Such rises have preceded a period of sharp corrections or outright bear markets, as shown below.

Bitcoin NUPL chart. Source: Glassnode

Historically, NUPL values above 0.6 seldom sustain before leading to significant price adjustments. Thus, a noticeable correction is visible in March, with a broader downside move possibly having already begun.

Long liquidations boost sell-off

The sharp drop in cryptocurrencies’ prices has sparked a flurry of liquidations in the derivatives market, catching bullish traders by surprise and leading to a swift round of long position liquidations.

In the past day, the cryptocurrency market has seen over $428 million in positions liquidated, with long positions accounting for around $343 million.

Crypto liquidation heatmap. Source: Coinglass

Such liquidations of long derivative positions can lead to downward pressure on asset prices, especially when there’s a lack of adequate buying momentum from trading volumes.

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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