Market Deep Dive: Crypto market faces losses as altcoins plunge

Crypto trended lower this week, with BTC down 3.5%; it is currently trading at $25,500, and ETH is trading more than 10% lower at $1,665.

Altcoins, especially those mentioned as securities due to the recent crackdown by US regulators, saw even bigger losses: SOL (-24.5%), CRV (-22.6%), MATIC (-28.05%), and ADA (-21%). Other unmentioned altcoins held up better, for example, XRP (-8.5%) with the ongoing court case, and the memecoin DOGE (-9.9%).

Currently, we are witnessing a decoupling between crypto and stocks. Since last Friday, the tech-heavy Nasdaq, which usually exhibits a strong positive correlation with cryptocurrencies, has increased by 4.4%.

On Wednesday night, USDT briefly de-pegged by around 45 basis points at its lowest, likely due to a significant imbalance in a large curve pool (3 pool). The currency reserves of the 3 pool consist of DAI, USDC, and USDT, and the USDT balance in the pool increased to over 70%. As of now, USDT is only 12 basis points away from parity with the USD, while the imbalance in the 3 pool remains quite high, with USDT accounting for 65% of all reserve currencies.

On Tuesday, the US CPI data for May was released, showing slightly lower than expected numbers. Year-over-year (YoY) inflation is currently 4%, down from 4.9% in April, as a month with even higher inflation dropped out of the calculation. Month-over-month (MoM), the CPI decreased to 0.1% from 0.4% in the previous month.

More concerning is the core inflation number, which excludes volatile food and energy prices. MoM core prices still increased by 0.4%. If this trend continues, it would translate into an annual core inflation rate of nearly 5%.

On Wednesday, the Fed decided to keep rates steady at 5% to 5.25% as expected, after ten consecutive hikes over the last 15 months. This decision aims to gather more information and assess the impact of the previous hikes. However, the Fed surprised the market with its projection of two additional hikes remaining in the pipeline for the year. The market had anticipated only one more hike in July and a subsequent cut later in the year. Federal Reserve Chair Jerome Powell emphasised that future decisions would be data driven, and no final decision has been made regarding the July meeting.

The interest rate projections are also worth noting: the first-year projection increased from the previous 4.3% to 4.6%, and the second-year projection increased from the previous 3.1% to 3.4%. Powell emphasised that the Fed does not currently see core inflation decreasing sufficiently, and that the economy and the labour market are still running hot.

Yesterday, the ECB raised rates by 25 basis points as expected and provided more hawkish guidelines for future rate hikes than initially anticipated.

In other news, BlackRock filed for a Bitcoin ETF with the SEC. They plan to use Coinbase as the custodian for the ETF.


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