Market Capitalization Drops by 3% to $3.65 Trillion
On December 18, the cryptocurrency market took a significant hit, with the total market capitalization plummeting by around 3% to approximately $3.65 trillion. This sudden downturn has left many investors scratching their heads, trying to understand the underlying factors driving this decline and whether more losses are on the horizon.
Bitcoin Leads the Market Slump
The current crypto market correction is part of a larger trend that began during the late New York trading hours on December 15 when Bitcoin (BTC) tumbled from an all-time high of $108,364 reached on Bitstamp. BTC’s price dropped as much as 5% to an intra-day low of $103,173 on December 18. This decline triggered panic selling among crypto investors, resulting in a broad sell-off across the board.
Ether and Other Top-Cap Cryptocurrencies Posting Significant Losses
Ether (ETH) extended its two-day losses, dipping as low as $3,800 on December 18, marking 4% losses over the last 24 hours. Other top-cap cryptocurrencies, including Dogecoin (DOGE), Cardano (ADA), and Tron (TRX), are also down significantly, with losses ranging from 3.4% to 6%.
Massive Liquidations Across the Derivatives Market
Data from CoinGlass shows that a total of $419 million have been liquidated over the last 24 hours, with $333 million making up long positions. Long BTC leveraged positions totaling $53 million have also been liquidated on the day. These liquidations are similar to those seen on December 9 in the derivatives market when more than $1.5 billion long positions were liquidated.
Risk-Off Sentiment Pushes the Crypto Market Down
The ongoing correction in the crypto market mirrors the weakness witnessed in US equities. The S&P 500 dropped by 0.4% to close the day at 6,050.61 on December 17, while the Nasdaq composite index declined by 64 points. The Dow Jones index clocked its ninth consecutive daily loss, its longest losing streak since 1978, losing 0.61% to close the trading day on December 17 at 43,339.
Impact of Interest Rate Cuts
The performance of US equities highlights the impact of interest rate cuts on the valuation of the largest companies listed on stock exchanges in the United States. Market participants have now turned their focus on the US Federal Reserve’s interest rate cut decision later today.
Fed Meeting and Interest Rate Cut Decision
According to data from CME Group’s FedWatch Tool, the odds of the Fed keeping interest rates unchanged are now standing at 4.6% against 95.4% for a 0.25% rate cut. A 25 basis points cut will mark the Fed’s third rate cut of 2024, bringing the total reduction to 100 basis points.
CPI, PPI, and PCE Inflation
The Kobeissi Letter noted that CPI, PPI, and PCE inflation are all back on the rise as the labor market weakens. This has led to a tough job ahead for the Fed in its fight against inflation.
Bearish Divergence Between TOTAL Price and RSI
Today’s drop in the crypto market is preceded by a growing bearish divergence between its price and the relative strength index (RSI). Notably, TOTAL rose between November 11 and December 17, forming a series of higher highs. However, in the same period, its daily RSI descended, forming lower highs.
Divergence Between Rising Prices and Falling RSI
A divergence between rising prices and a falling RSI indicates weakness in the prevailing uptrend, which could hint at a reversal ahead. The consistent rise in TOTAL also led to overbought conditions for most of the period between November 11 and December 8, when the RSI moved above 70, occasioning a correction as buyer exhaustion and profit-booking set in.
Support and Resistance Levels
If the selling intensifies, the crypto market will likely drop toward the $3.50 trillion support embraced by the ascending trendline. Note that this line has acted as a dynamic support for TOTAL since November 11. On the other hand, a resurgence in buying pressure could push the crypto market cap toward its all-time high of $3.73 trillion, reached on December 16.
Disclaimer
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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