Market Wrap: BTC Tumbles Further Ahead of Fed Meeting; Extreme Fear Among Traders

The largest cryptocurrency by market capitalization dropped further on Tuesday as crypto industry layoffs widened and traders fretted over a likely steeper-than-expected rate hike by the U.S. central bank.

Down for the eighth consecutive day, bitcoin regained little strength after falling to a 30-month low of $20,834.50 on Monday night but was still down over 5% over the past 24 hours.

The 15% price drop at the start of the week was the biggest since the crash prompted by COVID-19 on March 12, 2020.

Not just bitcoin, but cryptocurrencies of all market cap sizes have suffered in the current sell-off, tracking steep declines in stocks, as Arcane Research noted in a report Tuesday.

“We’re coming off of about a decade of monetary stimulus and money supply has grown rapidly, and for the first time market participants are getting the punch bowl taken away from them,” said Fundstrat Global Advisors head of digital asset strategy Sean Farrell on CoinDesk TV. “I think we’re still going to need to see inflation start to roll over before we can be confident in any run to the upside and relief to the upside.”

An article in The Wall Street Journal on Monday hinted at a 75 basis point rate hike by the Fed at the conclusion of its two-day, closed-door meeting Wednesday.

This leaves traders fearing monetary tightening throughout the year with no break, as Atlanta Fed President Raphael Bostic suggested earlier this month, temporarily buoying crypto markets. Economists at Goldman Sachs (GS) now are forecasting 75 basis point rate hikes for both June and July, followed by a 50 basis point increase in September plus a 25 basis point hike in November and in December.

“Investors should be braced for volatility and sticky correlations at least in the coming days,” Arcane researchers wrote.

As a result, the bitcoin Fear and Greed Index reached 8, signaling extreme fear. While the market has been in extreme fear territory for the 56th consecutive month, this level hasn’t been seen since March 2020.

By Tracy Wang

The beleaguered crypto lending platform Celsius’s CEL token jumped eight-fold to an intraday high of $2.57 from 30 cents, according to data from FTX, before falling back to about 54 cents. That’s still up from 35 cents prior to a recent crash when Celsius halted withdrawals on June 12, citing “extreme market conditions.”

According to exchange data, it appears the latest price jump stemmed from a big spot buyer on crypto exchange FTX.

A trader who spoke with CoinDesk says the price action indicated a short squeeze, as shorting Celsius’s token had become an “overcrowded trade.” A “short” position is when traders bet on a token’s price to fall.

A short squeeze occurs when the price of a token moves sharply higher, prompting traders who bet against it – often with borrowed money or tokens – to buy it back or “cover” the position, to avoid greater losses.

Questions surrounding Celsius’s financial health have been making waves in cryptocurrency markets.

Most digital assets in the CoinDesk 20 ended the day lower.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.