Why is the crypto market down today?

The cryptocurrency market took a hit today, with the total market capitalization dropping by around 3% to about $3.65 trillion on Dec. 18.

This sudden plunge has left many investors scratching their heads, trying to understand the core catalysts behind this downturn and whether more losses are on the horizon.

24-hour performance of large-cap cryptocurrencies. Source: Coin360

Let’s look closer at the factors driving the crypto market down today.

Bitcoin leads the market slump

Today’s crypto market decline is part of a correction that started during the late New York trading hours on Dec. 15 when Bitcoin (BTC) tumbled from an all-time high of $108,364 reached on Dec. 17 on Bitstamp.

BTC price dropped as much as 5% to an intra-day low of $103,173 on Dec. 18. The decline in BTC triggered panic selling among crypto investors, with cryptocurrencies dropping across the board.

Ether (ETH) extended its two-day losses, dipping as low as $3,800 on Dec. 18, marking 4% losses over the last 24 hours.

Other top-cap cryptocurrencies posting significant losses on Dec. 16 are Dogecoin  (DOGE), Cardano (ADA)and Tron (TRX), which are down 3.4%, 3.4% and 6%, respectively.

Massive liquidations across the derivatives market accompanied this downturn in the crypto market.

Data from CoinGlass shows that a total of $419 million have been liquidated over the last 24 hours, with $333 million making up long positions. Long BTC leveraged positions totaling $53 million have also been liquidated on the day.

Total crypto liquidations. Source: CoinGlass

A similar move was seen on Dec. 9 in the derivatives market when more than $1.5 billion long positions were liquidated. These liquidations accompany an 11% drop in TOTAL—the combined market capitalization of all cryptocurrencies—with more than $400 billion being wiped off the crypto market.

A predominance of long liquidations suggests that the crypto market was overleveraged on the bullish side, primarily due to profit-taking and risk-off mode ahead of today’s Fed decision on rate cuts.

Risk-off sentiment pushed the crypto market down

The ongoing correction in the crypto market mirrors the weakness witnessed in US equities. The S&P 500 dropped by 0.4% to close the day at 6,050.61 on Dec. 17, while the Nasdaq composite index declined by 64 points. 

The Dow Jones index clocked its ninth consecutive daily loss, its longest losing streak since 1978, losing 0.61% to close the trading day on Dec. 17 at 43,339.

24-hour performance of US equities Source: Financial Visualizations

This performance highlights the impact of interest rate cuts on the valuation of the largest companies listed on stock exchanges in the United States.

“Tomorrow marks the final Fed meeting of 2024,” declared capital markets commentator The Kobeissi Letter in a Dec. 17 post on X. 

As such, market participants have now turned their focus on the US Federal Reserve’s interest rate cut decision later today.

According to data from CME Group’s FedWatch Tool, the odds of the Fed keeping interest rates unchanged are now standing at 4.6% at the time of writing, against 95.4% for a 0.25% rate cut.

Fed target rate probabilities for Dec. 18 FOMC meeting. Source: CME Group

A 25 basis points cut will mark the Fed’s third rate cut of 2024, bringing the total reduction to 100 basis points.

“Meanwhile, CPI, PPI, and PCE inflation are all back on the rise as the labor market weakens,” The Kobeissi Letter noted, adding:

Related: Stablecoins will see explosive growth in 2025 as world embraces asset class

TOTAL’s bearish divergence

Today’s drop in the crypto market is preceded by a growing bearish divergence between its price and the relative strength index (RSI).

Notably, TOTAL rose between Nov. 11 and Dec. 17, forming a series of higher highs. But, in the same period, its daily RSI descended, forming lower highs.

TOTAL/USD daily chart. Source: TradingView

A divergence between rising prices and a falling RSI indicates weakness in the prevailing uptrend, which could hint at a reversal ahead. 

The consistent rise in TOTAL also led to overbought conditions for most of the period between Nov. 11 and Dec. 8, when the RSI moved above 70, occasioning a correction as buyer exhaustion and profit-booking set in. 

If the selling intensifies, the crypto market will likely drop toward the $3.50 trillion support embraced by the ascending trendline. Note that this line has acted as a dynamic support for TOTAL since Nov. 11.

On the other hand, a resurgence in buying pressure could push the crypto market cap toward its all-time high of $3.73 trillion, reached on Dec. 16.

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.