• Bitcoin experienced its largest single-day percentage drop since November 2022, falling over 8% due to outflows from U.S.-listed spot exchange-traded funds (ETFs) and concerns over excessive leverage.
• Ethereum’s influence and regulatory uncertainty further contributed to the market downturn, while investors await insights from the Federal Reserve’s rate decision and Chairman Jerome Powell’s press conference.

Bitcoin (BTC) experienced a significant downturn on Tuesday, marking its most substantial single-day percentage drop since November 2022. The leading cryptocurrency plummeted by over 8%, with its value sinking below $62,000, according to data from TradingView. This sharp decline reflects a culmination of various factors influencing the crypto market’s sentiment and investor behavior.

BTC’s recent price correction has been exacerbated by substantial outflows from U.S.-listed spot exchange-traded funds (ETFs). Analysts point to these outflows as a primary catalyst for the downturn. Investment firm Farside reported a record net outflow of $326 million from spot ETFs on Tuesday, following Grayscale’s ETF experiencing a record outflow of $643 million the previous day.

According to trader and economist Alex Kruger, the crash can be attributed to several factors, with excessive leverage being the foremost concern. Additionally, Ethereum’s (ETH) influence on the market’s direction, particularly regarding the ETF approval, played a significant role in the downturn. The diminishing likelihood of the U.S. Securities and Exchange Commission (SEC) approving an ether spot ETF by May contributed to the negative sentiment surrounding cryptocurrencies.

Ether, the second-largest cryptocurrency by market capitalization, experienced a similar decline, dropping from its recent peak of around $4,000 to $3,130. The uncertainty surrounding regulatory approval and market overheating led to a correction in ETH’s price.

The crypto market’s vulnerability was further exacerbated by an overheated environment, with excessive leverage on bullish positions. Traders were paying annualized funding rates of over 100% to maintain their bullish perpetual futures bets, signaling an unsustainable buildup of leverage.

Investor attention has now shifted to the Federal Reserve’s upcoming rate decision and Chairman Jerome Powell’s subsequent press conference. With the dollar index and U.S. Treasury yields rising due to persistent inflationary pressures, there is growing apprehension among investors regarding the outlook for risk assets, including cryptocurrencies.

Federal Reserve’s Influence on Cryptocurrency Markets

The Federal Reserve’s stance on interest rates and inflation will likely have a profound impact on cryptocurrency markets in the coming days. With inflation remaining a persistent concern and the Fed potentially signaling a more hawkish stance, investors are closely monitoring Powell’s statements for insights into future monetary policy decisions.