The cryptocurrency market is experiencing strong corrections due to a combination of adverse factors. Here are the 5 main reasons behind this dramatic plunge:
1. Macro Factors and Tariffs
The US Federal Reserve's decision to maintain the current interest rate at 4.25%-4.50% has led to a surge in the US dollar index and 10-year Treasury yield. This, combined with President Trump's tariffs, has fueled a cautious outlook among investors. The core PCE index rose by 0.3% compared to the previous month, pushing the annual inflation rate to 2.6%. As a result, the chance of the Fed cutting interest rates by 25 basis points is only forecasted to occur once before the end of this year
2. Over $7 Billion in Bitcoin and Ethereum Options Expiry
The expiry of Bitcoin and Ethereum options contracts worth over $7 billion has made the market cautious. Bitcoin options contracts worth $5.72 billion and Ethereum options contracts worth $1.35 billion expired, leading to increased selling pressure. This has caused Bitcoin's price to slide below the 'max pain' level, resulting in a series of investors being liquidated or forced to close positions passively.
3. Outflow of Capital from Bitcoin Spot ETF Funds
Spot Bitcoin ETF funds witnessed outflows of up to $114.8 million, with Fidelity's FBTC, ARK 21Shares' ARKB, and Grayscale's GBTC reporting significant outflows. This reflects a rotation of capital and selling activity from the institutional block. Analyst Ali Martinez predicts that the next support level for Bitcoin is $107,000, after breaking the important support level at $116,950 during the recent plunge.
4. Massive Sell-off and Large-scale Liquidation
The cryptocurrency market experienced a 'liquidation storm' with a total value of nearly $1 billion, causing nearly 200,000 traders to face 'account liquidations' within just 24 hours. The largest single liquidation recorded was the ETH/USDC pair on Binance, valued at up to $13.79 million. This large-scale liquidation has triggered a widespread selling wave across the market.
5. Signals from On-chain Data
The percentage of Bitcoin supply in profit has continued to stay above 90% for over a month, increasing the risk of mass profit-taking. Glassnode warns that breaking the 'Cumulative Mean +1 Standard Deviation' index could signal a warning for a new wave of selling. Additionally, the Bitcoin price spread on Coinbase has turned negative, indicating weakening buying pressure from the US market .
