A crypto crash is happening, despite the highly dovish statements from senior Federal Reserve officials. Bitcoin and top altcoins like Synthetix (SNX), Hyperliquid (HYPE), Binance Coin (BNB), and Sui (SUI) were some of the top laggards today.
Crypto Crash Caused by Trade Tensions
The main reason why the crypto crash is happening today is that the US and China have intensified their conflict this week. On Tuesday, China announced sanctions against the US division of a South Korean shipping company.
In response, Donald Trump’s administration threatened fresh sanctions against Chinese cooking oil. He blamed the country’s refusal to buy American soybeans on the ongoing trade war.
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China has announced plans to start limiting the shipment of rare earth materials to the United States and other countries. It has cited national security issues as these materials are used to make weapons.
Therefore, there is a likelihood that the two sides will continue their trade war in the coming months. Such a move will lead to more volatility in the market and higher inflation, which may limit the Federal Reserve’s rate cuts.
On the positive side, the ongoing tit-for-tat statements could be an escalation that often results in a de-escalation, as we saw in April after Trump’s Liberation Speech.
Crypto Fear and Greed Index Slips After Liquidations
The crypto crash is also happening as the Fear and Greed remains near the fear zone. One of the reasons for this fear is that over 1.6 million traders were wiped away on Friday when liquidations jumped to almost $20 billion. The market cap of all coins shrank by over $300 billion.
Therefore, there is a likelihood that many crypto investors are starting to exit the industry for good. In a statement, a popular trader told Bloomberg:
“The problem with alt coins is, yes, they can go up more. But they can go -50% in a day or -90% in a week. I am not going to play that game with my portfolio late in the cycle when the odds keep increasing that the end is here.”
Fed to the Rescue?
There are two main catalysts that may help boost the crypto market soon. First, Donald Trump will meet with Xi Jinping later this month in South Korea, where trade will be the main topic. A potential deal will be beneficial for the crypto industry.
The other main catalyst is that Federal Reserve officials seem supportive of interest rate cuts. In a statement, Susan Collins, the head of the Boston Fed, noted that:
“With inflation risks somewhat more contained, but greater downside risks to employment, it seems prudent to normalize policy a bit further this year to support the labor market,”
Her statement echoed that of Jerome Powell, who has sounded supportive of cuts. Crypto prices often do well when the Fed is cutting rates.
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