A crypto crash is happening, with most altcoins being in the red. Some of the top laggards were altcoins like Fartcoin, Moo Deng, Popcat, Pudgy Penguins, and Neiro, which plunged by over 10%.
This Crypto Crash Explained
Bitcoin and most altcoins are going down as investors remain concerned about Donald Trump’s tariffs. In a statement, he imposed new tariffs on countries such as Japan, South Korea, Bangladesh, and Indonesia. These countries will be charged a levy of over 25% starting from August.
The tariff announcement sparked a sense of fear among investors, which drove the US dollar index (DXY) higher and the US stock market lower. For example, the Dow Jones Index dropped by 422 points, while the Nasdaq 100 Index fell by 188 points. The closely-watched VIX Index rose by 1.7%.
Cryptocurrencies and the stock market often exhibit a close correlation with each other, as they are both considered high-risk assets.
On the positive side, the tariff threat could be a negotiating tactic by Donald Trump. For example, he increased tariffs on Chinese goods to 145% in April, only to sign a deal with China a few weeks later.
The other positive is the recent phrase: Trump Always Chickens Out (TACO). It implies that Trump makes outlandish claims only to back off afterward. For example, tariffs on these countries were scheduled to start on July 9, but he has pushed them ahead.
Federal Reserve concerns
The crypto crash is also happening because of the rising concerns that the Federal Reserve may not cut interest rates quickly enough. Data released last week showed that the unemployment rate improved to 4.1% as the economy added over 147k jobs in June.
These strong job numbers prompted investors to reassess their outlook on the Federal Reserve. Analysts now expect the bank to maintain interest rates unchanged in the July meeting and possibly cut in September.
In line with this, the crypto market will react to minutes from the Fed officials that will come out on Wednesday.
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Bitcoin Demand Falling a Bit
The crypto crash is unfolding as concerns emerge that demand for Bitcoin is waning. Data shows that spot Bitcoin ETFs had over $769 million in inflows last week, the smallest increase in four weeks.
Further, Strategy, formerly known as MicroStrategy, did not buy Bitcoin last week, breaking a multi-week record. Altogether, major Bitcoin purchases have been weak recently, sending shockwaves among market participants.
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