The cryptocurrency market experienced a significant downturn today, with the total market capitalization falling by 1.33% to $2.6 trillion. Bitcoin, the largest cryptocurrency by market cap, dropped 2.7% to around $69,156, while Ether fell 4.1% to trade at approximately $3,675.
Market Reaction to U.S. Jobs Data
The downturn in the crypto market coincides with investors shifting to a risk-off mode following the release of higher-than-expected U.S. employment data. On June 7, the U.S. Labor Department reported the addition of 272,000 jobs in May, far exceeding the forecast of 185,000 and significantly higher than April’s 165,000. Additionally, the unemployment rate rose to 4.0%, up from 3.9% in April.
This robust jobs report has led to speculation that the Federal Reserve may delay lowering interest rates, a move considered essential for boosting liquidity in risk assets, including cryptocurrencies. The Federal Open Market Committee (FOMC) is set to meet on June 12 to discuss rates, with market sentiment indicating a low probability of a rate cut in the upcoming meetings.
Impact on Risk Assets
The anticipation of sustained high-interest rates is negatively impacting risk-on assets such as cryptocurrencies, emerging market stocks, bonds, and even commodities. Bloomberg’s Chief Economist, Anna Wong, noted that the rising unemployment rate might be a more accurate indicator of the labor market’s health compared to the payroll additions, suggesting that the actual pace of job gains is likely lower than reported.
Liquidations Fuel Market Decline
The crypto market’s decline has been exacerbated by significant liquidations of long positions. Over the past 24 hours, the crypto derivatives market witnessed more than $387.83 million in liquidations, with long positions accounting for $348 million of that total. The largest single liquidation order occurred on the OKX crypto exchange, involving an ETH/USD swap worth $5.20 million.
When long positions are liquidated, it generally involves selling off the asset, which can drive prices down further. This cascade effect of liquidations has added downward pressure on the market.
Technical Indicators and Market Sentiment
Technical analysis also indicates bearish signals. The daily chart for total market capitalization shows a bearish divergence in the Relative Strength Index (RSI), which suggests that despite recent price increases, momentum has been decreasing. This divergence often precedes downward movements, indicating that bears may currently have control over the market. The RSI, a momentum indicator, helps assess whether a market is overbought or oversold.
The bearish divergence suggests that the market could be headed toward the 100-day simple moving average (SMA) at $2.402 trillion in the short term.
The current decline in the crypto market is driven by a combination of stronger-than-expected U.S. employment data, low prospects of near-term interest rate cuts by the Federal Reserve, and significant liquidations in the derivatives market. As the market adjusts to these new economic signals and investor sentiment, stakeholders will closely monitor upcoming Federal Reserve meetings and broader economic indicators for further direction.
