Altcoins have been falling for the past two days, with BTC currently finding buyers at $27,500. The total value of cryptocurrencies has plummeted below $1.1 trillion, while volume has dropped to $35 billion. The drop in volume, together with the drop in price, lends credence to the hypothesis that the current recovery is a bull trap.
Why Did Cryptocurrencies Dropped?
Although the price of Bitcoin reached $28,500, a rise of more than 5%, it was unable to maintain that level. After a failed resistance test, the price fell. While the approval of Ethereum ETF futures aroused enthusiasm, it did not result in strong demand, leaving investors disappointed. Furthermore, the most recent data from the United States was not encouraging.
The number of open vacancies increased from 8.9 million to 9.6 million yesterday. This report raised anticipation that the US labor market will prompt additional tightening measures. Indeed, recent statements from Fed officials hinted that interest rates, which are currently near their all-time highs, could be raised even further. The JOLTS report fueled the fire.
Powell specifically addressed the labor market in his August remarks at the Jackson Hole summit. If there is no improvement in this area, the Fed Chairman hinted that policy could be tightened further. The data over the last two months supports the worst-case scenario.
Analysis Of Bitcoin And Altcoins
Interest rate hike expectations in the November meeting were at 16% last week, but have risen to 30% in the previous 24 hours. Given the most recent statistics and pronouncements, the expectation of an interest rate hike may have a negative impact on markets as the November meeting approaches.
However, the lack of demand for futures ETFs has increased the negative sensitivity in the medium run. The combined daily volume of the six ETFs was over $2 million. This is almost nothing in comparison to the trading volume on the BTC ETF's debut day in November 2021, which exceeded $150 million.
Even if a spot BTC ETF is approved, the lack of demand could lead to a significant disappointment. In reality, the current situation has indirectly dampened expectations for the results of the spot BTC ETF. A other outcome would have been unexpected given the growing risk aversion in the markets.
Finally, the case filed two days ago against CZ says that FTX was purposely bankrupted. The issue is that the US Department of Justice may soon file a lawsuit based on the ongoing investigation. The Fed intends to tighten more. As global inflation remains high, stock markets in the United States have begun to fall. Demand for risk assets is diminishing as oil prices and the DXY rise. Given all of these considerations, cryptocurrencies may face more difficult times ahead.
Disclaimer: This article is for informational purposes only and should not be considered as financial advice.