Crypto: Bitcoin price falls as $80m wiped out in 24 hours

Bitcoin logo, representation of cryptocurrencies and decreasing stock graph are seen in this illustration taken, July 7, 2022. REUTERS/Dado Ruvic/Illustrations
Bitcoin has dropped 6% in the past week. Photo: Reuters/Dado Ruvic/Illustrations

The crypto market is a sea of red after the wipe-out of millions of dollars of leveraged long positions, as cautious investors digest concerning US inflationary data.

Bitcoin has dropped 6% in the past week, down to $23,274 as of Tuesday. The world's largest cryptocurrency by market cap having fallen from its peak of over $25,000 a week ago.

Cautious investors are analysing the persistent inflation concerns in the US, which have increased the possibility of the Federal Reserve implementing more aggressive interest rate hikes than previously anticipated.

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There is now a growing expectation of a 50 basis point (bp) rate increase rather than the anticipated 25 bps at the next Federal Open Market Committee (FOMC) meeting, scheduled for 15 and 16 March.

Interest rate hikes dry-up the money supply and encourage saving in US dollars rather than investing in high-risk assets such as bitcoin (BTC-USD) and ethereum (ETH-USD).

The cryptocurrency market cap is now $1.11tn, down 1.0% change in the last 24 hours, according to data from CoinGecko. The cause of the latest slump seems to be twofold, uncertainty around inflation and the tightening net of crypto regulation in the US, UK and Europe.

A wipe-out of nearly $80m in leveraged crypto long positions has amplified the current slump in prices.

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According to data from CoinGlass, in the past 24 hours 28,201 traders were liquidated, with the total liquidations comes in at $79.43m.

The largest single liquidation order happened on the Seychelles-based Bitmex exchange, with the wipe-out of a bitcoin to US dollar long position valued at $4.24m.

The uncertainty around inflation initially began the week before last when the US consumer price index (CPI) and the producer price index, or PPI, for January both came in higher than investors were expecting.

This is a problem because investors were convinced that inflation would continue cooling off.

Inflation is down from its peak in the summer of 2022, but recent readings have shown it has a surprising staying power.

The PPI index has climbed 5.4% in January from a year earlier, the US Commerce Department said on Friday.

This has come as an unexpected U-turn after nearly six months of relatively consistent cooling.

Analysts now forecast that inflation in the US will persist for longer, and that the US could be on the brink of a second wave of inflation, despite the successive rate hikes.

All of this means that the Federal Reserve could raise rates even higher in response, which means less money available for speculation on high-risk assets such as crypto.

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