Shock due to record inflation in the US: bitcoin dropped 18% overnight

The cryptocurrency market was under intense pressure after the release of negative US inflation data for May 2022, where the CPI index was 8.6%. The cryptocurrency market fell by more than 10% overnight. It should be noted that other markets, such as the US stock market, are also declining (for example, the index of high-tech companies NASDAQ has lost about 5% in one day).

Why is the market falling?

According to a new report, the main reason is the record acceleration of inflation in the US. Investors are scared that the US will respond with a sharp tightening of its credit policy. These fears are causing capital to run away from risky markets, including cryptocurrency.

The US Federal Reserve will hold its most important monetary policy meeting this Wednesday. The regulator will announce its decision on 15 June, determining whether the markets will continue to fall or the situation will stabilize. The current market reaction is based on the expectation of a strict response from the US authorities to the acceleration of dollar inflation.

Spiral liquidations

The second important reason for the fall is that retail traders were not expecting such a deep market correction, so they were hit hard by the strong counter-move. Data from Coinglass shows that almost $1 billion has been liquidated in the cryptocurrency market in the past 24 hours.

Long positions in Bitcoin and Ethereum accounted for 40% of all liquidations, or more than $400 million. Cascading liquidations are pushing the market down, causing even more panic. This leads to the disabling of withdrawals on some exchanges to complete clearing (Binance and Celsius have already reported the problems).

What do other metrics say?

The Fear and Greed Indicator is at a critical value at the moment, and there is panic in the market:

Nevertheless, despite the panic, big investors (whales) continue to buy bitcoin, according to Glassnode:

Despite the panic among retail traders, many players maintain a neutral position, waiting for important decisions from the Feds in the middle of the week.

The world’s largest cryptocurrency, Bitcoin, is currently trading at $23,100. As the chances of a US recession rise, selling pressure in cryptocurrencies is simultaneously increasing. 

Among the top cryptocurrencies, Ethereum suffered the most, losing nearly 25% of its price: