On Wednesday, the cryptocurrency market suffered a sharp decline amid a series of macroeconomic events, causing a sudden drop in risk appetite. Bitcoin fell to $75,472, dropping 2.30% within 24 hours. Ethereum declined to $2,240, down 3.69%. XRP dropped to $1.36, falling 2.26%. The total cryptocurrency market cap shrank by 2.06% to $2.53 trillion, erasing $5.65 billion in value. Levaged positions were liquidated across the market within a single day.
Liquidations of long positions reached $370 million, indicating that traders betting on further price increases suffered the heaviest losses. Liquidations of short positions amounted to $195 million, suggesting that some short sellers also misjudged the speed and direction of the price rally.
Three things happen at once
The sell-off on Wednesday was not triggered by a single event. Three distinct macroeconomic shocks occurred in succession, reinforcing each other and intensifying the selling.
At Jerome Powell's final meeting as Fed Chair, the Fed held rates steady, but what truly moved markets was the wording accompanying the decision. The Fed dropped its previous description of inflation as “slightly elevated” in favor of a more definitive assessment: “inflation is elevated.”
This change in wording indicates that the timing of rate cuts is later than market expectations, thereby reducing the liquidity conditions that have historically supported risk assets.
Meanwhile, Brent crude oil prices surged to approximately $119.50 per barrel, reaching the highest level since the peak of the Iran conflict in 2022. The International Energy Agency has called this situation the greatest energy security threat in history.
President Trump rejected Iran's proposal to reopen the Strait of Hormuz, and U.S. Central Command confirmed it is prepared to launch a series of strikes against Iranian infrastructure.
Status of Key Assets
Bitcoin Ethereum prices remain above $75,000 but have slipped below the psychological $76,000 level. Ethereum is trading near $2,240. Solana has dropped to $82.44, down 2.81% on the day. Dogecoin is down 3.36%. The Fear & Greed Index stands at 39, in the fear zone, reflecting market caution rather than panic, as participants closely monitor Iran’s situation and oil prices for the next directional cue.
As Powell's era at the Federal Reserve officially ends and a new chair takes office, amid surging energy prices and ongoing military conflicts in the Middle East, the macroeconomic backdrop for cryptocurrencies in May is far more complex than it appeared a week ago.
Related:Powell delivers likely final speech as rates hold steady