Market Downturn Driven by Fed Signals and Trade Negotiations
Bitcoin experienced a notable decline, falling below $108,000 on Thursday. This downturn occurred as traders reacted to disappointing outcomes from President Trump's meeting with Chinese leader Xi Jinping and signals from the Federal Reserve regarding future interest rate cuts. The drop in Bitcoin's value also impacted major cryptocurrencies, including Ethereum, Solana, and other tokens, which saw significant losses.
The leading digital coin had previously set a new record of $126,080 at the beginning of October, a month often referred to as "Uptober" due to historically strong gains in both the crypto and stock markets. However, Bitcoin is now trading nearly 15% below its recent peak level.
Altcoins and Futures Market Experience Sharp Sell-off
Ethereum saw a 5% decrease over a 24-hour period, trading just above $3,782. Other top cryptocurrencies by market capitalization, such as Solana, XRP, and DOGE, also experienced declines, trading lower by 6%. Altcoins were particularly hard-hit during this sell-off, suffering greater losses than Bitcoin.
The crypto futures market witnessed a significant surge in liquidations, surpassing $1.1 billion over the past day. The majority of these liquidations were from long positions, which are bets on prices increasing. Bitcoin alone accounted for nearly $500 million in liquidations, with Ethereum contributing over $250 million to the total.
Federal Reserve's Stance and Market Expectations
The recent sell-off follows comments made by Federal Reserve Chair Jerome Powell on Wednesday. Powell indicated that the U.S. central bank might not implement further interest rate cuts this year. Historically, Bitcoin, other crypto assets, and stocks tend to perform well in environments with low interest rates, and the Fed had previously cut rates at its last two meetings.
Strahinja Savic, head of data and analytics at FRNT Financial, provided insight into the market's reaction. He explained, "The market was expecting a green light to go risk-on. Instead, Powell said that further cuts are not a ‘foregone conclusion’ and the Xi-Trump meeting did not produce any concrete results or certainty."
Savic characterized the market's response as a reaction to short-term mixed signals, with investors focused on immediate gains adjusting their positions after not receiving the anticipated positive confirmation. Greg Magadini, Amberdata's Director of Derivatives, shared similar observations, noting that the global market was positioned for long positions across the board leading up to these events.
Impact of Trade War on Market Sentiment
President Trump's ongoing trade war with China and other nations has frequently caused market volatility since his inauguration in January. Despite his generally crypto-friendly stance, his unexpected tariff announcements have often triggered sharp drops in Bitcoin and other risk-on assets like technology stocks. Even after a reduction in tariffs on China by 10% following the meeting in South Korea, markets remained unenthusiastic, despite President Trump describing the outcome as "truly great" and "amazing."
U.S. stock indices also traded lower on Thursday morning Eastern Time, reflecting a broader skepticism regarding the concrete outcomes of the meeting. "What's the next reason for markets to go higher? So a sell-off makes sense to me," stated Magadini, highlighting the prevailing market sentiment.