What caused the sudden drop in the cryptocurrency market?

Author: 1912212.eth, Foresight News

Just two days after the official trading of the Ethereum spot ETF, the market began to experience a significant decline. Interestingly, Ethereum had previously risen due to positive news, but after the good news was exhausted, the negative news led to a drop that was much greater than that of BTC and SOL. ETH fell below $3200, with a 24-hour decline of over 8%. Ethereum ecosystem tokens also saw considerable drops, while Bitcoin briefly fell below $64,000, down 3%, and SOL dropped 2%. In the past hour, the total liquidation across the network reached $113 million, with long positions liquidating $108 million and short positions liquidating $4.2254 million.

Ki Young Ju, founder and CEO of CryproQuant, stated that after Mt. Gox repaid creditors, the trading volume of BTC spot trading pairs on the Kraken platform and the inflow/outflow of the platform did not show any abnormal fluctuations outside the range. The decline in BTC may be due to market sentiment rather than actual sell-offs.

Since the Mt. Gox sell-off has not occurred, what macro negative factors are affecting capital flows?

U.S. Stock Market Plunge Drags Down Global Risk Assets

Tesla and Google's earnings reports fell short of expectations, triggering pessimistic sentiment among investors regarding the AI bubble, dragging the Nasdaq and S&P 500 down by 3.64% and 2.31%, respectively, marking the largest single-day decline in a year and a half since the end of 2022. This caused a complete halt in U.S. stock indices, with the Dow dropping 500 points, small-cap indices falling 2.1%, chip stocks declining 5.4%, and Chinese concept stocks dropping nearly 2%.

The total market capitalization of tech giants has shrunk by nearly $1.75 trillion compared to ten days ago. Tesla fell 12.33%, marking its largest single-day drop since September 2020. Nvidia dropped 6.8%, Meta fell over 5.6%, Google declined 5.04%, marking its largest drop in six months since the end of January, Microsoft fell about 3.6%, Amazon dropped about 3%, and Apple fell about 2.9%.

As the U.S. stock market and other risk assets performed poorly, global investors' risk aversion increased. As a highly liquid asset, cryptocurrencies inevitably felt the impact, leading to capital withdrawal and subsequent declines.

Interest Rate Cuts Imminent, But Data Performance Still Needed

Cryptocurrency risk assets are significantly influenced by the Federal Reserve's interest rates. Only when the Fed officially announces interest rate cuts will capital continuously flow out in search of more profitable assets, thereby driving up the prices of stocks and cryptocurrencies.

Market voices are calling for a prompt interest rate cut.

Bill Dudley, former president of the New York Fed and a permanent voting member of the FOMC, stated today: "I have long been in the camp of maintaining high rates for a longer time. I believe that to control inflation, short-term rates must be kept at current levels or higher. But now the situation has changed, so I have changed my mind. The Fed should cut rates, preferably starting at next week's rate meeting."

However, the market generally estimates that the earliest possible time for a rate cut may be September, rather than sooner.

The inflation trend and strong employment data in the first half of this year have led the Fed to pay more attention to inflation risks, causing market expectations for rate cuts to continuously fall short. As we enter the second half of the year, with the fading of secondary inflation risks and rising unemployment rates (4.1%), the Fed's risk management stance is gradually shifting towards "growth risks."

Currently, even if the Fed wants to start cutting rates in September, there are still multiple processes to go through, and the economic data released before the meeting must align with the Fed officials' expectations, namely, a softening of inflation, employment, and growth to provide data support for rate cuts.

Therefore, an immediate rate cut by the Fed still carries significant uncertainty.

U.S. Presidential Candidate Harris's Ambiguous Stance on Crypto

U.S. President Biden announced today that he would withdraw from the 2024 presidential race and focus on fulfilling his presidential duties during his term. Harris has officially become a strong opponent to Trump.

Although participants in the prediction market Polymarket estimate a 62% probability of Trump winning the election and a 36% probability for Harris, a recent Reuters poll shows Harris leading Trump by a narrow margin (44% to 42%).

Harris has also been confirmed by the CEO of Bitcoin Magazine to not attend the upcoming Bitcoin 2024 conference to give a speech. Additionally, compared to the many crypto views of "understanding king" Trump, Harris has never commented on the crypto industry or taken an official stance on cryptocurrencies. Financial disclosures indicate that neither Harris nor her husband has ventured into the crypto space.

The only indirect connection was during the 2020 election when Harris hired Montoya, the former CTO of the NBA's Sacramento Kings, who made the Kings the first team in the world to accept Bitcoin and also launched NFTs. Montoya is currently a presidential assistant in the White House, responsible for scheduling, so it is unlikely he will have a significant impact on her policies.