The crypto market is crashing this week, with Bitcoin plunging below $112,000 and Ethereum falling to $4,160. The market capitalization of all coins has plunged to $3.9 trillion, down from the year-to-date high of over $4.2 trillion. This article explores some of the top reasons why cryptocurrencies are going down.
Crypto market crash as Fed officials warn on inflation
Crypto prices are plunging this week as investors remain concerned about the Federal Reserve despite cutting interest rates last week.
Several Fed officials who talked this week maintained a cautious tone as they remained concerned about the elevated inflation
Recent data showed that the headline Consumer Price Index (CPI) rose from 2.7% in July to 2.9% in August, while the core CPI remained at 3.1%.
In a statement on Tuesday, Jerome Powell noted that more cuts were not assured this year despite the dot plot pointing to two more cuts.
Austan Goolsbee, a top Fed official, noted that he was concerned about stagflation in the country and the fact that inflation has remained above the 2% target for four-and-a-half years. He said:
“Eventually, at a gradual pace, rates can come down a fair amount if we can get this stagflationary dust out of the air. But with inflation having been over the target for four-and-a-half years in a row, and rising, I think we need to be a little careful with getting overly, up-front aggressive.”
Bitcoin and Ethereum ETF outflows
The crypto market is crashing as demand from American investors eases. Data shows that spot Ethereum and Bitcoin ETFs have had substantial outflows in the past two days.
Bitcoin ETFs had outflows of over $103 million on Tuesday and $363 million a day earlier. Their cumulative inflows has dropped to $57 billion. Ethereum ETFs had outflows worth $140 million on Tuesday and $75 million a day earlier.
Other crypto ETFs such as the recently launched XRP and DOGE have also lost momentum after the substantial inflows last week.
Crypto liquidations rose as the fear and greed index fell
The crypto market is also happening as liquidations surge. Data compiled by CoinGlass shows that the total liquidations jumped to over $1.65 billion on Monday, the biggest increase this year.
Bullish liquidations then dropped to $179 million on Tuesday and are at $115 million today.
Liquidations happen when crypto exchanges are forced to close leveraged trades when the collateral, commonly known as margin falls. Crypto prices normally plunge when these liquidations happen as they lead to more selling pressure.
At the same time, the Crypto Fear and Greed Index has moved to the fear zone this week, moving from last month’s greed level of over 65. It is common for cryptocurrencies to drop when a sense of fear returns in the market.
Concerns about the Bitcoin price rising wedge
Further, the crypto market is crashing as investors remain concerned about Bitcoin’s technicals, which point to an eventual crash in the coming weeks or months.
The logarithm chart above shows that the coin has formed a rising wedge pattern on the weekly chart, and the two lines are about to converge.
At the same time, the Relative Strength Index and the MACD have formed a bearish divergence pattern. This divergence normally happens when the indicators are moving downwards as the price continues rising.
Therefore, there is a risk that Bitcoin will have a strong bearish breakdown in the coming weeks, which will impact the prices of other cryptocurrencies.
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