Why Did the Cryptocurrency Market Plummet Today?

▲ Bitcoin, Ethereum/ChatGPT generated image ©

The cryptocurrency market, which had recently been on a formidable upward trend, has unanimously turned to a decline, encountering reefs of massive capital outflow and macroeconomic uncertainty, heightening investors' tension. This downturn is the result of a combination of a sharp exodus of institutional funds from Wall Street and psychological contraction due to a change in leadership at the U.S. Federal Reserve (Fed), with warnings that it could lead to further plunges if technical support lines collapse.

According to CoinMarketCap, a cryptocurrency market data aggregator, on May 15 (local time), the total cryptocurrency market capitalization decreased by 2.63% over 24 hours to $2.63 trillion, showing a clear bearish trend. The most direct cause of the market decline is the rapid capital outflow from the spot ETF market, primarily centered around Bitcoin (BTC). A massive net outflow of over $800 million occurred in just two days in the U.S. Bitcoin spot ETF market, rapidly cooling institutional investors' sentiment, which led to a domino selling effect across the entire asset market.

Market experts are particularly paying attention to the synchronization phenomenon between the virtual asset market and the U.S. stock market. Currently, the cryptocurrency market shows a high correlation of 73% with the S&P 500 index, suggesting that the current correction is not merely an internal issue of the crypto market but stems from macroeconomic risks. Furthermore, coinciding with the sensitive period of the Fed chair change from Jerome Powell to Cain Wash, investors reduced their exposure to risky assets and adopted a wait-and-see approach, increasing downward pressure.

Regulatory risks outside the institutional framework also hampered the market. News that traditional financial exchanges urged regulators to prevent the expansion of the decentralized exchange Hyperliquid created tension across the industry. These macro and regulatory headwinds have caused institutions to withdraw from unlaunched assets or high-risk investment sectors, and further volatility is highly likely to emerge depending on the Senate coordination process of the future U.S. cryptocurrency market structure bill, the CLARITY Act, and the policy direction of the new Fed chair.

The short-term direction of the market is analyzed to depend on the defense of key support lines. The crucial point is whether the BTC price can maintain the significant support zone between $78,000 and $78,400. If this support line breaks, a cascade of liquidation orders from investors' forced long position liquidations will likely pour out, making further declines difficult to avoid. The current daily Relative Strength Index (RSI) is 54.8, indicating that there is still room for further downward movement if the support line fails to hold.

Consequently, this dipping is largely a sentiment-driven adjustment caused by a temporary outflow of institutional funds coupled with regulatory noise. For the market to regain stability and secure upward momentum, Bitcoin must successfully defend its key support lines, and institutional funds from Wall Street must return to net inflows into the spot ETF market. Without the restoration of institutional confidence and the alleviation of macro concerns, the market is expected to continue experiencing volatility under additional downward pressure for the time being.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*