Why Is The Crypto Market Falling Today?

On February 24, 2023, the cryptocurrency market and the US stock market experienced significant drops. While market volatility is not an unusual phenomenon, this particular event caught the attention of investors and traders worldwide. In this article, we will take a closer look at the reasons why the crypto market is falling today and the possible implications of this.

Fears of Inflation Rise

One of the primary reasons for the drop was the fear of rising inflation. The Personal Consumption Expenditures (PCE) price index, which is the Federal Reserve’s preferred inflation index, showed that the rate of inflation in the US rose to 5.4% on an annual basis in January, exceeding the Fed’s 2% target for inflation. The core rate of PCE inflation increased for the first time in four months, reaching 4.7%. This suggests that the Fed may need to keep interest rates high for a longer period to combat inflationary pressures.

Expiry of Bitcoin Options

Another reason for the drop was the expiry of Bitcoin options contracts worth around $1.8 billion. These contracts allowed traders to predict the price of BTC by buying and selling options called “call” and “put” at a certain price and given expiry date. The expiry of these contracts caused short-term volatility in the price of BTC. Open Interest, which is the total number of outstanding crypto derivative contracts that have not yet been resolved, reached 300,000, the second-highest in history.

Market Reaction

The Dow Jones Industrial Average dropped by 1.4%, while the S&P 500 index and the Nasdaq composite both experienced declines of 1.6% and 2.0%, respectively. Companies with exposure to cryptocurrencies, like Coinbase, Microstrategy, Robinhood, and Riot Platforms, also saw declines in their share values.

The total market capitalization of the crypto market fell by 3.27%, bringing it down to $1.06 trillion. At the time of writing, Bitcoin (BTC) is trading at $23,190, while Ethereum (ETH) has experienced a drop of 3.40% over the course of the past 24 hours, presently exchanging hands at $1,595.

Implications of the Drop

The drop in the cryptocurrency market and the US stock market may have implications for investors and traders worldwide. For instance, investors may become more cautious and hesitant to invest in cryptocurrencies and stocks, leading to a decline in demand. Additionally, the drop may lead to increased regulatory scrutiny, as authorities seek to mitigate risks associated with cryptocurrencies and the stock market.

What’s the Conclusion?

The drop in the cryptocurrency market and the US stock market on February 24, 2023, was primarily caused by fears of rising inflation and the expiry of Bitcoin options contracts. While market volatility is not unusual, this event may have implications for investors and traders worldwide. As always, investors are advised to exercise caution and seek professional advice before making any investment decisions.

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