Why is the Crypto Market Crashing Today? (May 16)

Key Insights

• The crypto market is crashing today as a risk-off sentiment prevails.
• Bitcoin price has dropped below the important support of $80,000.
• There is a risk-off sentiment in the market as inflation rises.

Crypto markets sold off sharply Friday as Bitcoin lost the $80,000 level and broader risk appetite weakened across global markets.

BTC dropped toward $78,000 after failing near resistance above $82,000 earlier this month. Ethereum also slipped below $2,200, while major altcoins such as Hyperliquid, Bittensor, and Morpho posted steeper losses.

Global Risk-Off Mood Hits Crypto

The ongoing crypto market crash has coincided with the weakness in other assets. For example, global stocks plunged on Friday, with the top US benchmarks falling by over 1% on Friday. The same happened in Europe, where the German DAX tumbled by over 2%, and the top indices like FTSE 100, CAC 40, and FTSE MIB fell by nearly 2%.

Asian indices also tumbled, with the red-hot Kospi Composite, which has jumped by 70% this year, falling by over 6%. At the same time, global bond yields continued soaring, with the 30-year US Treasury yield rising to over 5.05%.

This decline occurred as President Donald Trump began his two-day trip to China with no major accomplishments. For one, President Xi Jinping did not promise to end the Strait of Hormuz closure. Indeed, while most assets are falling, crude oil prices remain elevated, with Brent and West Texas Intermediate (WTI) rising to $109 and $105, respectively.

There is an elevated risk that the US will restart its assault on Iran as the quagmire continues. Some Trump allies believe that another round of strikes will force the Iranians to reach an agreement.

Another phase of fighting will make the energy market worse as Iran would likely focus on the energy infrastructure of its allies. Such a move would worsen the inflation situation and make it hard for the Federal Reserve to cut rates even with Kevin Warsh as its leader. Data released this week showed that the headline CPI and PPI jumped to 3.8% and 6%, respectively.

Fading Demand as Futures Open Interest Fall and ETF Outflows Rise

The crypto market is also going down today amid falling demand. Data compiled by CoinGlass shows that the 24-hour volume in the crypto industry tumbled by 21% to $170 billion in the last 24 hours.

The data also reveals that the 24-hour futures open interest dropped by over 2% to $128 billion. Additionally, liquidations jumped by 80% to $580 million as many bullish traders were caught off guard by the ongoing reversal.

Another sign of fading crypto demand is that spot Bitcoin and Ethereum ETFs have suffered substantial outflows in the past few days. Bitcoin funds lost over $1 billion this week, with BlackRock’s IBIT suffering the most outflows. Similarly, Ethereum ETFs lost assets in all days this week, bringing the cumulative monthly outflows to over $200 million.

The ongoing ETF outflows and falling volume and futures open interest are signs that demand is falling. It also signals that some investors are booking profits after the recent surge that pushed most of them up by double digits.

Bitcoin Price Weak Technicals

The ongoing crypto crash is also driven by Bitcoin’s weak technicals. As the chart above shows, the coin has failed to move above the closely-watched 200-day moving average. In most cases, a real turnaround in the stock, crypto, and commodity markets is usually confirmed when an asset moves above the 200-day moving average.

Another risk is that Bitcoin has formed a rising wedge pattern. This pattern consists of two converging rising trendlines. It often leads to a bearish reversal. Also, the two lines of the MACD indicator have pointed downwards after having a bearish crossover.

Therefore, crypto investors are worried about a prolonged Bitcoin decline that will negatively affect other altcoins. A Bitcoin drop to $70,000 and below will lead to more sell-off among these altcoins.

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