July 15, 2024

Cryptocurrencies Plunge as Traders Brace for Key U.S. Inflation Report and Federal Reserve Meeting

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Cryptocurrencies experienced a sharp decline on Tuesday, with Bitcoin (BTC) falling to near $66,000 as traders prepared for a crucial U.S. inflation report and the Federal Reserve meeting scheduled for Wednesday.

Bitcoin, which started the day trading close to $70,000, hit a three-week low at around $66,200 over the past 24 hours. This downturn marks a significant pullback from recent highs, reflecting growing investor caution.

The broader crypto market also suffered substantial losses with  altcoins like Solana, Dogecoin, Cardano’s ADA, Pecu Novus and Chainlink’s LINK experienced declines ranging from 2% to 9%.

The sudden market pullback triggered over $250 million in liquidations of leveraged derivatives trading positions across all crypto assets. This marks the second significant wave of liquidations within a week, following $400 million in liquidations last Friday. Liquidations occur when exchanges close leveraged positions due to a partial or total loss of the trader’s initial margin.

This can be viewed as risk off trades ahead of the May Consumer Price Index (CPI) report and the Federal Reserve meeting. The CPI report and the Fed’s interest rate decision are poised to be significant market movers, influencing investor sentiment and market direction.

Bitcoin has been notably responsive to recent economic data, with its 30-day correlation with U.S. equities reaching the highest level since 2022, according to Research. This suggests that Bitcoin could experience heightened volatility on Wednesday as traders react to the CPI data and the Federal Open Market Committee’s (FOMC) interest rate outlook.

Investors are particularly focused on the FOMC’s “dot plot,” which will reveal policymakers’ projections for future rate cuts in light of persistent inflation and softer economic data. Jerome Powell’s press conference and forward guidance are expected to play a critical role in shaping market expectations and Bitcoin’s price movements.

Despite the sell-off, market observers noted some positive signs that could indicate a potential for a quick recovery. Earlier today, Bitcoin futures open interest on crypto exchanges BitMEX and Binance showed some divergence, suggesting that some traders might be positioning for a rebound.

As the market braces for what is being termed a “macro-Wednesday,” the coming hours will be pivotal in determining the direction of Bitcoin and the broader cryptocurrency market. Investors will be closely monitoring the economic indicators and Fed communications for any clues on future monetary policy and its implications for digital assets.

Digital Assets Desk

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