The crypto market is known for its volatility, but recent trends have sparked even more concerns among investors and enthusiasts. As of early June 2024, the market has experienced a significant downturn. Not only did Bitcoin prices go down, but also the total crypto market capitalization sank. Numerous altcoins have also dropped their value, with Akash Network (AKT) registering the largest single-day decline. We explored the latest data to understand what caused this drastic change. Using the insights of the market experts, we figure out what investors expect next.
Recent market overview
On June 10, Bitcoin, the largest cryptocurrency by market capitalization, has fallen 2.7% to around $67,369. Ethereum, the second-largest cryptocurrency, dipped 4.1% to trade around $3,675. This downturn marks the second consecutive decline, driven by market reactions to stronger-than-expected U.S. employment data.
Key factors contributing to the decline
Strong U.S. employment data
On June 7, the U.S. Labor Department reported the addition of 272,000 jobs in May, surpassing estimates of 185,000 and significantly higher than April's 165,000. This robust job growth suggests that the labor market is handling tight fiscal policies much better than expected. Strong employment numbers typically show economic strength, but it also means that the Federal Reserve is less likely to lower interest rates. For risk assets like cryptocurrencies, it can lead to quite unfavorable outcomes.
Unemployment rate increase
In May, the unemployment rate rose to 4.0% from 3.9% in April, marking the first increase since January 2022. Despite the rise in job additions, the increase in the unemployment rate has cast doubts on the strength of the employment market. Some analysts argue that the rise in unemployment reflects a more accurate state of the current labor market as it is adjusting to economic pressures.
Federal Reserve interest rate outlook
The recent employment data has made it less likely that the Federal Reserve will lower interest rates anytime soon. Lowering rates is crucial for adding liquidity to riskier investments like cryptocurrencies. The Federal Open Market Committee (FOMC) is meeting on June 12 to discuss interest rates, but the chances of a rate cut at this meeting are super low.
The CME FedWatch tool shows just a 0.6% chance of a rate cut on June 12 and 8.88% for the July 31 meeting. In contrast, the odds for a rate cut in September and November are much higher, at 46% and 47.4% respectively. This scenario is bad news for cryptocurrencies and other risky assets because higher interest rates make borrowing more expensive and dampen the appeal of speculative investments.
Crypto market liquidations
The crypto derivatives market has seen significant liquidations, further fueling the downturn. Over the past 24 hours, more than $387.83 million worth of liquidations occurred, with $348 million being long positions. The forced selling of these positions adds to further price declines. The largest single liquidation order involved an ETH/USD swap worth $5.20 million on the OKX crypto exchange. Additionally, more than 133,576 traders were liquidated over the last 24 hours, highlighting the widespread impact on the market.
Technical indicators
The daily chart shows a bearish divergence in the Relative Strength Index (RSI), preceding today's drawdown. The RSI is a trend-following oscillating momentum indicator used to assess whether a market is overbought, oversold, or accumulating. A bearish divergence occurs when an increase in price is accompanied by a momentum decrease, suggesting that bears are gaining control of the market. This divergence could point to further downward movements, with the potential for the total market value to move toward the 100-day simple moving average (EMA) at $2.402 trillion in the short term.
Expert opinions and predictions
Bloomberg's Chief Economist Anna Wong
Anna Wong emphasized that the rise in the unemployment rate is a major indicator of the employment market's reality. She noted that the Bureau of Labor Statistics model for estimating business births and deaths added 231,000 jobs to the nonfarm payrolls in May, potentially overstating job gains. According to Wong, the actual pace of job gains is likely less than 100,000 per month.
Shivam Thakral remarked, "Stronger than expected US jobs data dashed the rate cut hopes by the US Fed, which dampened investor sentiment. Investors switched to sell-off mode, causing BTC to plunge below the $70,000 mark while Ethereum hovers around the $3,600 mark."
The ZebPay Trade Desk highlighted that while Bitcoin's price has slipped from its intra-week high of approximately $72,000, bulls are striving to maintain support above $67,000.
Other market movements
Altcoin performance
The broader market downturn has also impacted altcoins. For instance, Akash Network's price is currently at a two-month low after marking a near 18% decline from yesterday’s (June 11) highs. The ongoing downtrend has brought the altcoin down to trade at $3.86 after falling through the resistance of $4.21. The altcoin on the daily timeframe is also noting a potential death cross, a bearish indicator where a short-term moving average crosses below a long-term moving average, signaling further potential declines.
Market capitalization changes
Days after losing the crucial support of $2.50 trillion, the total crypto market cap dropped again. In just about 24 hours between 9 and 10 June, the market observed $87 billion being removed, reducing the combined value of all crypto assets to $2.38 trillion. The anticipation surrounding the US inflation rate has caused the market to turn bearish. Sitting under the resistance of $2.39 trillion, a breach of this level is necessary to initiate recovery.
Conclusion
The crypto market's decline today is primarily driven by stronger-than-expected U.S. employment data, which raises concerns about future Federal Reserve interest rate cuts. The uncertainty it caused has led to significant liquidations in the crypto market which further exacerbated price declines. As investors digest these economic indicators and anticipate upcoming Federal Reserve meetings, market conditions are expected to remain volatile.
While the long-term outlook for cryptocurrencies remains unclear, staying informed about key economic trends and market movements can help investors pass these challenging times with less loss. The combination of robust job growth, rising unemployment, and technical indicators all point that investors should remain cautious in the short term.
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