The release of concerning U.S. inflation data has triggered a widespread market correction, sending shockwaves through the digital asset landscape.
The cryptocurrency market, often known for its resilience and ability to operate independently, has today fallen prey to the gravitational pull of traditional financial markets. The release of concerning U.S. inflation data has set the stage for a broader market correction, with implications for both traditional and digital assets.
Notably, the U.S. consumer price index (CPI) for April came in hotter than anticipated, revealing a 0.4% rise in consumer prices last month. Economists had predicted a decline. Additionally, April’s CPI showed a 4.9% year-over-year increase, compared to the 3.3% year-over-year decline economists had anticipated.
Following the release of this data, which also showed a 3.2% year-over-year increase in the core CPI, investors quickly reduced their holdings of risk assets. This move was driven by concerns over persistent inflationary pressures and the potential for a faster tightening of monetary policy by the Federal Reserve.
The immediate impact on the cryptocurrency market was evident. Bitcoin (BTC), the world’s leading cryptocurrency, dropped below the $83,000 level. Meanwhile, Ethereum (ETH) fell below the critical $1,800 support zone. XRP, despite Ripple’s recent legal victory against the SEC, saw a staggering 12% decline in just 48 hours, making it the worst-performing major cryptocurrency this week.
The overall cryptocurrency market capitalization decreased by 1.82% in the last 24 hours, settling at $2.68 trillion. A significant contraction in trading volumes was also observed, with market liquidity dropping by 30% to reach $62.18 billion. Bitcoin’s dominance increased to 61%, indicating a flight to relative safety among investors.
However, the market downturn resulted in a staggering $450 million in liquidations across the cryptocurrency market. This figure highlights the high degree of leverage employed by traders and the potential for significant losses during periods of market volatility.
The liquidations further exacerbated the price declines, creating a self-reinforcing cycle of selling pressure. The combination of inflation fears, reduced liquidity, and leveraged trading created a perfect storm for the cryptocurrency market.
In other developments, a large Ethereum whale reduced their holdings after a period of intense accumulation. This suggests that even in a bear market, some investors are becoming less interested in accumulating cryptocurrencies.
