What Is Causing the Altcoins Market Crash and What Can We Expect Next
Key Points
The altcoin market has seen a 2.4% decrease in market cap due to market volatility and uncertainty surrounding the Ethereum ETF.
Upcoming events such as the CPI release and FOMC meeting are driving current market corrections.
Potential FED rate cuts and the approval of the Ethereum ETF could help boost the altcoin market.
When Bitcoin prices drop, other altcoins tend to follow suit. Currently, Bitcoin holds a market cap of $1.33 trillion, representing 55.62% of the total market value. This increase in Bitcoin dominance is attracting investors back to Bitcoin as a safe haven during turbulent market conditions, resulting in a decline in altcoins.
Over the past week, the altcoin market has been correcting significantly, with a 2.4% decrease in market cap to $254.943 billion. This drop is attributed to overall market weakness and uncertainty surrounding the launch of the Ethereum ETF, leaving many in the cryptocurrency community questioning the reason behind the significant crash in altcoins.
Factors Contributing to Altcoin Decline
The primary catalyst for the current market correction is the upcoming release of the Consumer Price Index (CPI) and the FOMC meeting scheduled for Wednesday. Historically, the crypto markets have experienced downward pressure leading up to such events.
For example, previous statements from FED Chair Jerome Powell have often resulted in notable corrections in the crypto markets. The two preceding FOMC meetings caused Bitcoin to decrease by more than 10% in the week leading up to the events, with altcoins experiencing even greater declines of over 20%, as seen in March.
Impact of the Roaring Kitty Saga
A significant event influencing the market was the ‘Roaring Kitty’ saga, which contributed to the decline in altcoin prices. The correction in GameStop from last Friday triggered a broader market correction, with some altcoins plummeting by more than 20%.
Furthermore, the strength of the U.S. Dollar and ongoing quantitative tightening (QT) have further weakened the case for altcoin growth, leading to a continued downward trajectory.
Despite the prevailing negative sentiment, there are indications of a potential recovery. Historically, markets have rebounded swiftly after FOMC meetings. Ethereum has witnessed gains of approximately 20% following these meetings, while Bitcoin has surged by more than 20% since the last FED meeting.
What Lies Ahead?
Investors are closely monitoring the situation as mounting U.S. government debt and weaker economic data suggest a possible interest rate cut. Senator Elizabeth Warren and her colleagues have penned a letter to Fed Chair Jerome Powell, urging a rate reduction to alleviate financial burdens on working Americans grappling with high housing and insurance costs.
With the unemployment rate on the rise and the European Central Bank (ECB) already implementing rate cuts, there are indications that the FED may opt to lower rates to avert a potential recession.
Furthermore, the anticipated approval of the Ethereum ETF in the upcoming weeks could have a positive impact on the altcoin market as well.