The current week witnessed a sharp fall in the crypto market, with Bitcoin, Ethereum, and top altcoins, recording huge losses. Analysts cite various convergent factors, which have led to the continuous sell-off.
1. September: A Weak Month for Crypto Market
September has long been a difficult month for cryptocurrencies, and statistics indicate nearly 70% of the times it witnesses bearish trend. This period is usually undertaken with care by the investor, and the seasonal squeeze seems to have taken its toll on the market moo,d restricting the purchasing interest and enhancing the downward force.
2. Options Expiry Pressure
The volatility of the market was largely caused by the expiry of crypto options. Friday was to witness close to $22 billion in contracts expiring, such as $17 billion in Bitcoin options and about $5.3 billion in Ethereum contracts, as per data from Deribit.
A major portion consisted of longs, which further added selling pressure as traders redirected their positions or closed them. The expiry was at the end of the third quarter, which increased the market swings. The liquidations in the derivatives markets wiped out almost $1.5 billion earlier in the week, further destabilizing the prices.
3. U.S. Dollar Strength
The U.S. dollar had momentum last week as the results of the labor market were better than expected. The Labor Department recorded 218,000 seasonally adjusted first-time jobless claims in the week ending September 20, a fall of 14,000 from the previous week’s revised figure and far less than the 235,000 expected by economists. This better-than-anticipated result was an indication of further market strength in the labor market, and it lowered market beliefs that the Federal Reserve would need to cut interest rates aggressively.
The U.S. Dollar Index (DXY) broke beyond 98.5, which exerted pressure on the risk assets. The mood of investors was also negatively affected by the geopolitical tension in Eastern Europe and macroeconomic uncertainty, which affected Bitcoin, Ethereum, and other significant cryptocurrencies.
4. Heavy Liquidations
Liquidity of derivatives markets contributed to the negative trend. In the last 24 hours, according to CoinGlass data, there were total liquidations of $971 million, and they comprised long positions. Ether had more than $311 million liquidated, and it had $271 million in longs and $40 million in shorts, whereas Bitcoin had $245 million in overall liquidation and 236 million in longs. XRP had undergone liquidations totaling $20 million, most of which were on long. Such unwinds increased volatility and hastened falls in key coins.
5. Uncertainty Around Fed Policy Decisions
The recent reduction of the rates by 25 basis points by the Federal Reserve created optimism in the first place among the investors. Nevertheless, the following economic indicators, such as a 4.3% unemployment rate and GDP growth to 3.8% against the estimate of 3.3%, are more likely to dampen anticipations of further aggressive easing.
The reaction of the market was rapid, with expectations of a long-term reduction of the rates being priced in crypto assets, and any indication of a strong labor market caused a new wave of selling. Amid this uncertainty, the Bitcoin price fell below $110,000, trading around $109,500 at the time of reporting. Meanwhile, Ethereum continued trading under $4,000, and other altcoins also saw steep drops.
Read More: Bitcoin Price Today: BTC Trades Near $109K amid these Catalysts
