Top 4 Reasons the Crypto Market is Crashing This Week

The crypto market is crashing this week, with only a handful of cryptocurrencies being in the green. Bitcoin is stuck in a correction after falling by over 10% from its highest point this year.

The cryptocurrency market capitalization has dropped from over $4.2 trillion earlier this year to $3.8 trillion today. This crash is happening as the Crypto Fear and Greed Index falls, liquidations jump, and Federal Reserve officials warn about interest rate cuts.

Crypto Market is Crashing as Fear and Greed Index Falls

One reason why the crypto prices are crashing this week is that the risk-on sentiment in the market is fading. One sign that this is happening is the Crypto Fear and Greed Index performance, which has slumped in the past few days.

It has plunged from a high of 73 in August to the neutral point of 41. If this trend continues, it means that the index will move to the fear zone in the coming weeks. In most cases, investors stay in the sidelines with little buying when there is fear in the market.

Leveraged Cryptocurrency Traders are Being Liquidated

Meanwhile, the future market performance is not encouraging and is contributing to the ongoing crypto market crash.

Data compiled by CoinGlass shows that crypto exchanges are closing leveraged bullish trades. Leveraged trades worth over $1.65 billion were liquidated on Monday, most of them being Ethereum and Bitcoin.

Liquidations then cooled a bit on Tuesday and Wednesday and surged by over 40% to $330 million on Thursday. Over 135,000 traders were liquidated in the last 24 hours.

The crypto market normally plunges when there is a significant increase in liquidations because of the increasing selling pressure. It is common for traders to stay off when liquidations are rising.

Hawkish Fed Statements Have Fueled the Crash

The cryptocurrency market is also plunging because several Federal Reserve officials have delivered hawkish statements.

In a statement on Tuesday, Beth Hammack, the head of the Cleveland Fed, urged for caution on interest rate cuts. Other Fed officials like Austan Goolsbee and Raphael Bostic also warned about this.

These officials noted that more rate cuts will fuel inflation in the country. They also noted that the labor market was still stable despite the recent noise, citing the low unemployment rate.

Recent macro data showed that the headline consumer inflation has been in a slow uptrend. It jumped to 2.9% in August, while the core CPI remained at 3.1%.

The Fed warnings mean that the pace of interest rate cuts will be slower than expected. Historically, the crypto market thrives when the bank is cutting rates as that leads to a rotation from bonds to risky assets.

Still, on the positive side, the CME Fed Futures tool shows that the odds of a cut in October remains at 89.8%.

Bitcoin Price Has Formed Risky Patterns

In recent articles, The Market Periodical noted that Bitcoin price has formed a rising wedge pattern on the weekly chart. This pattern is made up of two ascending and converging trendlines.

The coin has formed a slanted head-and-shoulders pattern. This pattern comprises three key sections: head, shoulders, and a neckline. It normally leads to more downside over time.

Therefore, if this happens, the coin will crash towards the $100,000 mark. Such a move will fuel further crypto market crash because Bitcoin is usually the most important driver for altcoins.

The crypto market is also crashing as investors book profits after the recent rally. It is also falling as demand from treasury companies falls, with many publicly traded companies like Metaplanet and MicroStrategy having a low mNAV ratio. Also, Ethereum and Bitcoin ETF inflows have slowed lately.