The crypto market is collapsing and these are the possible reasons

Source: CritpoTendencia Original Title: The cryptocurrency market is crashing and these are the possible reasons Original Link: A wave of massive liquidations is spreading across the cryptocurrency market, causing sharp price drops. The most important assets in the ecosystem, such as Bitcoin and Ethereum, are experiencing significant sell-offs. This analysis reviews the factors that are likely behind this strong pullback.

At the time of writing this note, the price of BTC has accumulated a drop of -24.5% from its recent all-time high on October 6. This translates to an exchange value of $96,400 per coin, leaving the pioneering cryptocurrency with a modest +1.6% so far this year (YTD).

Meanwhile, the total market capitalization of crypto has contracted by more than $1 trillion since its recent peaks. This is a correction of significant magnitude that leads some analysts to raise the possibility of a bear market in formation. The capital outflows from both BTC and ETH ETFs amplify these fears.

The reasons behind this new shakeup can be diverse, or even a combination of factors. However, one of the most relevant triggers is the confirmation that the October CPI inflation report will not be published in the United States. This is compounded by the statements from Federal Reserve member Neel Kashkari, who stated that inflation increased significantly during the government shutdown.

The cryptocurrency market downturn could continue

Market concerns are intensifying due to the worsening outlook related to monetary policy. According to CME's FedWatch, the chances of a rate cut by the Federal Reserve have decreased significantly. The probability that the Fed will reduce by 25 basis points in December is now 52.1%, down from 62.9% previously.

In simple terms, if the U.S. central bank does not implement a rate cut in December, the high-rate economy could last at least until the first quarter of 2026. And if, as Kashkari suggests, inflation accelerated during the shutdown, the rate reduction could be frozen for even longer.

The impact of all this on risk assets is evident, especially in the more volatile ones like cryptocurrencies. The outlook could worsen if inflation continues to rise. In a scenario where prices keep increasing and the labor market loses strength, the United States could be approaching the dreaded stagflation.

As can be seen, although the fundamentals of the crypto market remain solid, external conditions are not favorable. This could be enough to prolong the bearish pressure on BTC, ETH, SOL, and also on smaller capitalization assets, including memecoins.