The cryptocurrency market saw a sharp decline on October 22, with the total market capitalization dropping by around 1.5% to $2.3 trillion. This downturn has reversed gains made over the past few days, with Bitcoin and Ether seeing losses of 1.6% and 2.8%, respectively. The decline is largely attributed to risk-off sentiment from the US stock market and the strengthening of the US dollar, which has shaken investor confidence in potential Federal Reserve rate cuts.
Stock Market Weakness Impacts Crypto
The crypto market’s decline mirrors the recent performance of US equities. The S&P 500 and Dow Jones both recorded losses, with the latter dropping 344 points (0.8%) on October 21. Meanwhile, the Nasdaq Composite index gained slightly but did little to reverse the overall negative sentiment. The dip in equities, especially in major US companies, has spilled over into the cryptocurrency space, with traders growing cautious amid the uncertain economic environment.
24-hour performance of large-cap cryptocurrencies. Source: Coin360
Stronger US Dollar Adds Pressure
On October 21, the US Dollar Index (DXY) reached its highest level since early August, peaking at 103.67. The stronger dollar has added further pressure to the crypto market, reducing traders’ optimism about future Federal Reserve rate cuts. Although market participants are still focused on the upcoming Federal Open Market Committee (FOMC) meeting in November, expectations for a significant rate cut have dwindled. According to the CME Group’s FedWatch Tool, there is now a 0% chance of a 0.5% rate cut, with the likelihood of a 0.25% cut standing at 89.9%.
Liquidations Add to Market Downturn
Long traders betting on the crypto market’s upside were caught off guard, with over $171 million in liquidations in the past 24 hours. Ether liquidations alone totaled $58.8 million. As leveraged long positions are forced to close, selling pressure has driven the market valuation lower. Total liquidations across the wider crypto market have reached $201 million, signaling that many traders are stepping back and closing positions.
DXY daily chart. Source: TradingView
Technical Weakness Suggests Further Decline
From a technical standpoint, the total cryptocurrency market cap remains inside a descending parallel channel, which has been in play since March 2024. The failure to break above $2.36 trillion on October 21 suggests further losses, with the possibility of the market retreating to the middle boundary of the channel at $2.06 trillion. A deeper drop could see the market cap fall to $1.89 trillion, representing a 17% decline from current levels.
