Cryptocurrency Market Plunges as Fear of Emergency Rate Cut Grows
The recent downturn in cryptocurrency markets has caused significant losses, with the overall market value dropping by 12.5% to approximately $1.97 trillion. This marks the first time since mid-February that the market value has fallen below $2 trillion.
The Impact of the Fed’s Interest Rate Stance
Speculation of an emergency rate cut by the Federal Reserve amid market uncertainty has intensified. This uncertainty has led to a sharp decline in the price of Bitcoin, which is currently trading at $53,399, representing a 10.8% drop in the past 24 hours. Similarly, Ethereum also saw a significant decline of 21.2% and is now trading at $2,306 after briefly falling to $2,240.
The Ripple Effect of Ethereum’s Decline
Ethereum’s sharp decline has had a widespread impact on the cryptocurrency ecosystem. As the price of Ethereum dropped, on-chain data revealed that the peak gas fee reached 710 GWI, with the current average gas fee at 350 GWI. Journalist Colin Wu warned that further price declines could lead to large-scale liquidations in decentralized finance protocols.
“If Ethereum falls to $1,950, $92.2 million in cryptocurrency assets in the DeFi protocol will be liquidated, and if it falls to $1,790, $271 million in DeFi assets will be liquidated,” Wu said.
The broader impact of the market decline was evident in the clearing data, with over $800 million liquidated in the past 24 hours. The Fear and Greed Index for the cryptocurrency market dropped to 26, indicating a “fearful” state and reflecting growing pessimism among investors.
Speculation of an Emergency Rate Cut
Many industry experts attribute the market decline to recent macroeconomic conditions, particularly the Bank of Japan’s hawkish stance and the Federal Reserve’s cautious approach to interest rate cuts. With U.S. economic indicators sluggish and the Fed’s reluctance to make rate cuts, concern is growing that aggressive monetary policy easing may be necessary to prevent a recession.
Many cryptocurrency traders believe that the current situation could force the Federal Reserve to implement an emergency rate cut. Data from prediction markets shows an 11% increase in the likelihood of an emergency rate cut by the Fed within the next 24 hours.
