Bitcoin leads crypto market slump ahead of Fed rate decision

Cryptocurrencies took a nosedive on Tuesday as Bitcoin continued its recent downward trend. Investors are anxiously waiting for the Federal Reserve’s upcoming rate decision, causing widespread sell-offs across the market.

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The crypto market, in general, and crypto-related equities saw huge losses. Coinbase and MicroStrategy saw their shares drop by more than 4%, while Marathon Digital and Riot Platforms, two major crypto miners, lost more than 2%.

Long liquidations trigger Bitcoin losses

A key factor behind Bitcoin’s losses is the wave of long liquidations. This happens when traders are forced to sell their assets at market price to settle debts. CoinGlass data shows $56 million in long Bitcoin liquidations over the past 24 hours. This selling pressure has contributed to the decline in Bitcoin’s price.

Last Thursday also saw another $56 million in long Bitcoin liquidations, just before a better-than-expected May U.S. jobs report was released on Friday. After briefly testing the $70,000 level earlier this month, Bitcoin fell back below this key price point.

Like stock market investors, those trading in cryptocurrencies are worried that the Federal Reserve might not cut interest rates this year. The central bank has begun its two-day policy meeting, with a decision expected on Wednesday. This anxiety has spilled over into traditional markets as well, with the Dow Jones Industrial Average losing 272 points and the S&P 500 dropping 0.3% on Tuesday.

De-risking and volatility drive the market

The recent pullback in the crypto market is also due to investors de-risking ahead of important economic data. Hedge fund QCP highlighted that traders are cautious before the release of May’s Consumer Price Index (CPI) report and the Fed meeting.

However, K33 Research noted that Bitcoin could experience a volatile session on Wednesday. The cryptocurrency has shown a high sensitivity to economic data recently, with its 30-day correlation with U.S. equities hitting the highest level since 2022. “The stage is set for a frantic macro-Wednesday,” K33 analysts said.

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Investors are particularly focused on the Federal Open Market Committee (FOMC) members’ interest rate outlook, also known as the “dot plot.” This will indicate how many rate cuts policymakers expect for this year, given the persistent inflation and weaker economic data.

According to K33, “The FOMC dot plot, along with forward guidance during Jerome Powell’s press conference, will likely be the most significant price drivers, as Bitcoin has been closely reacting to market interest rate expectations.”

Despite the short-term challenges, QCP sees this as a potential accumulation phase. They noted, “Bullish events such as the eventual Ethereum spot ETF going live, along with Biden and Trump in a verbal arms race to win the crypto vote, could drive the market forward.”

Cryptopolitan reporting by Jai Hamid