What Drove Yesterday’s Crypto Market Dip?

Yesterday witnessed a slump in the crypto market, influenced by an unfavorable US inflation report and decreasing market liquidity, affecting investor confidence.

The crypto realm experienced a downward tug, with investors and enterprises grappling with a sudden spike in inflation and mounting concerns over the Middle East and Ukraine conflicts.

This turbulence in the market caused a cascade of liquidations, plummeting the total value locked (TVL) in crypto to levels unseen since March 2021.

Inflation’s Grip on Crypto Assets

The data from September’s Producer Price Index (PPI) indicated an unexpected 0.5% inflation hike. Consequently, Bitcoin’s price plunged to a two-week low, settling at $26,781.

Amid these inflation concerns, most prominent banks project a possible recession in the U.S. by 2023. As per U.S. Bank’s analysis, it’s probable we’ll see more interest rate hikes, and the investor mood is subdued given the prevailing economic climate:

“October’s initial U.S. equity trends appear uneven, influenced by persistent inflation, interest rate patterns, and the anticipation of third-quarter corporate earnings results.”

A Dive in DeFi’s TVL

The TVL metric serves as a lens to gauge the vitality of proof-of-stake (PoS) blockchains, including Ethereum, priced at $1,557, and to measure TVL in decentralized applications (DApps).

Yesterday’s TVL for the crypto market, which stood at $36.8 billion, hasn’t been this low since February 7, 2021. Dominating this market share is Lido, priced at $1.51, boasting nearly 38% dominance. This decline in TVL is accentuated by a 15% decrease in trading volumes.

The Ripple Effect of Futures Liquidations

The absence of robust trading volume or significant TVL can spell disaster when long derivative positions are liquidated, driving crypto prices down.

In the 24 hours leading to yesterday, the crypto market saw a whopping $50.3 million in long positions getting liquidated. The most significant blow was a Bitcoin long position on the OKX exchange, amounting to $1.5 million.

Nevertheless, some experts opine that the broader economy remains sturdy enough to present long-term investment prospects in Bitcoin and similar risk assets.

For the time being, the cryptocurrency world will sail through these multifarious challenges, with numerous economic dynamics playing a pivotal role in charting its path in the upcoming days.