Why is the crypto market down today?

The crypto market continues to fall as traders take a moment to figure out what is next for Bitcoin and altcoins.

The crypto market is down today, with the total market capitalization falling by 0.63% to reach $1.67 trillion on Jan. 18. This movement has increased Bitcoin (BTC) market dominance by 0.25% to 48.85% as the excitement surrounding spot exchange-traded funds (ETFs) cools off.

BTC price has traded sideways above $42,000 throughout the week, and traders are looking to accumulate below $40,000, but experts predict the days of the short-term impact of the Bitcoin ETF approvals are largely over as the market stalls.

Here are three reasons why the crypto market is down today.

Strong U.S. dollar triggers selling pressure in crypto

Trading volumes across the crypto market have taken a hit due to a number of factors, including volatility, earnings season and macroeconomic developments.

A strengthening U.S. dollar is exerting selling pressure on Bitcoin. The U.S. Dollar Index (DXY) reversed from 101 in early January and reached a notable stride, trading at 103.50 on Jan. 18 while confidently deflecting the pressures of the 100-day exponential moving average (EMA).

This robust strength has been fueled by increasing demand and a rise in the U.S. Treasury yields. U.S. retail sales rose higher than expected in the last month of 2023. Data from the U.S. Census Bureau shows that December 2023 retail sales outperformed consensus, registering 0.6% growth versus the 0.4% forecast and 0.3% from the previous period.

There has also been a significant rise in the U.S. Treasury yields, which shows that markets are adjusting their bets on the Federal Reserve’s rate-cutting roadmap.

In addition, the strengthening U.S. economy, supported by the latest data, is making changes to the market’s dovish bets, albeit odds for rate cuts in March and May still hover around 50 basis points.

In December, Consumer Price Index inflation, the rate of job creation, and wages picked up while economic activity remained strong.

This adds to the strength of the dollar, in turn exerting pressure on crypto prices.

Liquidations drive the crypto market lower

The decline in prices of major cryptocurrencies has led to a rush of liquidations across the derivatives market. Bullish traders appear to have been caught off guard, leading to a quick spat of long liquidations.

In the past 24 hours, over $137 million in long positions have been liquidated across the crypto market, with $89 million wiped out in the previous 12 hours.

Crypto market prices are negatively affected when long derivative positions are liquidated without buying pressure from trading volume.

Over 61,874 traders were liquidated, with the largest single liquidation being a BTC and Tether (USDT) on Binance valued at $7.31 million.

Related: Impact of Bitcoin ETFs: ‘Revolutionary change’ or colossal ‘dud’?

GBTC activity puts sell pressure on Bitcoin

The spot Bitcoin ETFs were approved on Jan. 10, with trading debuting on Jan. 12. The first trading session was somewhat confusing, as investors were not sure of what the actual trading volumes were. Market makers themselves also faced issues with the different liquidation timelines for each instrument.

Nevertheless, the $4.66 billion volume that spot BTC ETFs witnessed on the first day set a record high in the traditional finance industry, but it was enough to justify a sustained BTC price rally as had been widely expected.

The Grayscale Bitcoin Trust (GBTC) transferred 8,730 BTC, worth over $376 million, to Coinbase Prime deposit addresses on Jan. 16, according to data from blockchain analytics platform Arkham Intelligence.

The transfers imply that GBTC holders are choosing to close out portions of their positions.

Since the spot BTC ETFs launch, investor sentiment and the volatility surrounding the long-awaited approval have dropped, leading to market consolidation.

For retail traders, the current ETF inflows are not being perceived as spectacular, and the general consensus is the market needs time to cool off and consolidate.

On the X social network, independent market analyst Michael van de Poppe suggested that investors not be “bearish on #Bitcoin and have a negative outlook,” adding, “Buy the dip and hold.”

The ETFs on #Bitcoin have a net inflow of $782 million over the first three days.

That's more than 50% higher than ALL ETFs combined have done in 2023 in terms of volume.

People are bearish on #Bitcoin and have a negative outlook.

Don't be like that. Buy the dip and hold.

— Michaël van de Poppe (@CryptoMichNL) January 17, 2024