The cryptocurrency market’s net capitalization has dropped by over 4.50% in the past 24 hours to reach $2.414 trillion on May 24. Leading these losses are top coins, Bitcoin (BTC) and Ether (ETH), which have dropped by circa 3.5% and 4%, respectively.
Ether ETF approval triggers “sell the news”
The crypto market’s losses come a day after the U.S. Securities and Exchange Commission’s (SEC) approval of eight Ether exchange-traded funds (ETF), hinting at a growing “sell-the-news” sentiment among traders.
This counterintuitive reaction happens because investors often buy in anticipation of the news, driving up the price beforehand. Crypto analyst Zach Rynes suggests the market had already priced in the approval, with Ether surging 20% this week and taking the crypto market up by 5%.
Furthermore, the actual launch of these ETFs is pending further regulatory steps, including the approval of S-1 filings, which detail the financials and risks of the offering firms. VanEck’s amended S-1 filing is under SEC review, albeit the process could take weeks to months.
Related: SEC’s ETF nod could bring ‘ETH season’ if 3 key indicators hold
This delay has further dampened short-term buying sentiment in the crypto market. Nonetheless, Rynes anticipates a “massive capital inflow,” potentially reaching billions, once the Ether ETF commences.
Ether ETF approval sparks $378M in crypto liquidations
The recent decline in the crypto market over the past 24 hours is linked to significant liquidations in the derivatives market, totaling over $376.63 million. Of this amount, nearly $295.73 million were long liquidations.
Long positions are bets that the price of an asset will rise. When prices fall instead, traders or brokers are forced to sell these positions to prevent further losses. This forced selling increases selling pressure in the market, driving crypto prices even lower.
The initial price drop triggered a cascade of liquidations, amplifying the overall market decline.
FOMC minutes pressure risk-on assets
The crypto market’s recent decline occurred after the release of the Federal Open Market Committee’s (FOMC) minutes from their April 30-May 1 meeting on May 22, as illustrated below.
The minutes revealed revealed policymakers’ concerns about the timing for easing monetary policy.
Recent reports have shown that inflation remains elevated despite showing signs of cooling down on yearly timeframes. The Federal Reserve aims for a 2% inflation rate, but all indicators showed price increases significantly exceeding this target.
Bond traders’ bets for a potential interest rate cut in September has reduced from 51% to 49% after the release of the Fed minutes. This period has coincided with a rise in the U.S. 10-year Treasury note yield from 4.31% to 4.49%.
The rise in Treasury yields indicates that investors expect tighter monetary policy to persist, typically leading to higher borrowing costs and lower liquidity. This environment can be challenging for riskier assets, resulting in a downturn in the crypto market.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
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