The cryptocurrency market took another hit on July 25, with the total market cap dropping by over 3.5% to around $2.31 trillion. The plunge left many market participants questioning the key catalyst for this downturn and how much longer it will last.
Let’s take a look at the factors that have caused the cryptocurrency market to decline today.
Cryptocurrency markets are in a downtrend due to risk aversion.
Cryptocurrency markets are selling off, reflecting the weakness seen in U.S. stocks, which have lost a whopping $1.1 trillion in value in the past 24 hours.
The S&P 500 and Nasdaq hit multi-week lows on July 25, with the S&P 500 snapping one of its longest-running gains with a 2% daily decline, underscoring the impact of the tech-driven selloff, which has exposed the index to massive volatility.
The US dollar index plunged as risk aversion kicked in, down 0.3% as of July 25.
Meanwhile, the U.S. Department of Labor (DoL) reported on July 25 that initial claims for unemployment benefits in the U.S. increased by 235,000 in the week ending July 20. This figure was lower than the initial estimate of 238,000 and lower than the previous week’s increase of 245,000. In addition, continuing claims decreased by 9,000 to 1,851,000 in the week ending July 13.
The market remains cautious about the impact of the current situation on the Federal Reserve’s monetary policy. The Federal Open Market Committee (FOMC) is expected to meet on July 31, but expectations for a rate cut in July remain low.
Instead, investors have changed their expectations for two or more rate cuts by year-end. According to data from the CME Group FedWatch Tool, the probability of a rate cut at the September FOMC meeting is about 86% as of this writing.
Cryptocurrency prices drop due to spot Ethereum outflow
The newly launched US-based spot Ethereum exchange-traded fund (ETF) saw outflows on its second day of trading, with net outflows of $133.3 million, according to data from Farside Investors.
New Ethereum investment products are seeing another sell-off as the recently converted Grayscale Ethereum Trust (ETHE) sees another $326.9 million outflow.
Seven of the eight spot ETH ETFs saw net inflows on July 24, with Fidelity’s Ethereum Fund (FETH) and Bitwise Ethereum ETF (BITW) seeing the largest net inflows of $74.5 million and $29.6 million, respectively.
BlackRock’s iShares Ethereum Trust (ETHA), which recorded the strongest inflows within the group on July 23, raised just $17.4 million from investors on July 24.
According to a report by 10x Research, these outflows have triggered a sell-off that follows a familiar pattern seen in previously launched cryptocurrency ETFs, particularly spot Bitcoin (BTC).
Markus Thielen, founder of 10x Research, explained that many traders expect Ethereum ETFs to capture 20% of spot Bitcoin ETF inflows.
“But they overlooked the potential multi-billion dollar outflow from Grayscale and the tendency for exchange listings to trigger a ‘sell the news’ reaction. Furthermore, the crypto markets are entering a seasonally weak period.”
Meanwhile, spot Bitcoin ETFs recorded net inflows of $44.5 million on July 24, after recording net outflows of $78 million on July 23.
This suggests that market sentiment is mixed and confidence in sustainable growth in the short and medium term is lacking.
Cryptocurrency Markets Rocked by $330 Million Liquidations
These outflows come as long liquidations accelerate across derivatives markets, outpacing short liquidations over the past 24 hours.
According to data from Coinglass, long traders (traders who are betting on a bull market in the cryptocurrency market) have seen a total of $311.7 million worth of liquidations in the last 24 hours. In contrast, short traders have seen over $35.1 million liquidations in the same period.
According to Coinglass data, Ether liquidations reached $125.36 million, with the cumulative liquidation value of leveraged long positions exceeding $117.6 million. Long Bitcoin liquidations reached $86.51 million, and the numbers are increasing at the time of publication.
When long positions are liquidated, traders who are betting on a price increase are often forced to sell their positions at a loss. This increased selling pressure has led to today’s low valuation of the cryptocurrency market.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.