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The global crypto market has suffered a major blow in recent days. Market capitalization shrank by more than 160 billion US dollars in just a matter of days. Bitcoin fell below 111,000 dollars, while Ethereum slipped under 4,000 dollars. This sharp downturn did not happen in a vacuum. It was driven by a combination of macroeconomic pressures, derivative market dynamics, and inconsistent institutional inflows that fueled a spiral of selling pressure.

This episode highlights how digital assets remain extremely sensitive to global monetary policy. The latest US PCE inflation index, showing headline at 2.7 percent and core at 2.9 percent, triggered market anxiety. Investors now believe real interest rates will stay positive for longer than expected, reducing risk appetite. The impact was immediate in crypto, where massive leverage unwinding and weakening ETF inflows accelerated the selloff.

The US PCE inflation report took center stage. This metric guides the Federal Reserve’s policy decisions. With inflation holding above target, market expectations for aggressive rate cuts quickly faded. Risk appetite declined, with investors rotating into safer assets such as government bonds and the US dollar.

This stands in sharp contrast with the bullish narrative of recent months, when investors anticipated steep rate cuts. The new inflation data shifted that outlook. Crypto, long seen as a high-risk asset with extreme volatility, became the first casualty of reduced risk tolerance.

The persistence of core PCE at 2.9 percent signals that US inflation is not yet fully under control. This forces the Fed to move cautiously on rate cuts. Positive real interest rates weigh on valuations of risk assets. Since crypto generates no real cash flows, it depends heavily on liquidity and sentiment. In such conditions, selling pressure becomes easy to trigger.

Bond yields stayed elevated, while the US dollar strengthened as a safe-haven asset. Global capital flows shifted toward safer markets. As a result, crypto markets lost liquidity support. This rotation away from speculative assets accelerated Bitcoin and Ethereum’s decline.

Beyond macro factors, the crypto market’s internal mechanics magnified the selloff. Exchange data showed more than 900 million dollars in liquidations within 24 hours at the height of the turmoil. Long positions in Bitcoin and Ether were hit hardest. When key technical levels collapsed, stop-losses and automated selling created a spiral.

Bitcoin failed to hold above 113,000 dollars. The drop below that level unleashed a cascade of stop-loss orders and margin calls. Pressure mounted until Bitcoin hit the 109,000 range. Ether followed a similar path, with the 4,000-dollar level serving as a psychological threshold. A break below that level triggered further panic.

Spreads widened, order book liquidity thinned, and implied volatility surged. Options skew shifted heavily toward puts, showing rising demand for downside protection. Exchanges tightened margin rules, forcing even more positions to unwind. All these factors accelerated the deleveraging cycle.

Spot Bitcoin ETFs in the US had been viewed as a stabilizing force. Yet recent data showed inconsistent flows. After a strong inflow on September 24, subsequent days saw renewed outflows. This inconsistency weakened ETFs’ ability to absorb selling pressure.

ETF flows reflect net institutional demand. Stable inflows usually help absorb derivative-driven selloffs. However, when inflows falter, the market loses resilience. This time, inconsistent ETF flows combined with derivative liquidations to create a perfect storm.

In futures markets, the basis narrowed significantly. Premiums on forward contracts over spot prices shrank, showing reduced carry-trade demand. With less incentive for arbitrage buying, one more source of mechanical demand disappeared, further reinforcing downward momentum.

This crash resembles past “flash deleveraging” episodes in crypto markets. Yet there are differences this time. The long-feared Mt. Gox distributions have been delayed until October 2025, reducing immediate selling pressure from legacy creditors. This confirms that macro dynamics and leverage—not supply shocks—were the dominant drivers.

Shares of crypto-related companies plunged alongside digital assets. Listed exchanges and Bitcoin-holding firms posted steep declines. The correlation between crypto equities and spot crypto prices spiked, showing how turmoil in digital markets quickly spilled into traditional equities.

Open interest dropped sharply, reflecting a broad position reset. Perpetual funding rates converged toward zero, signaling the end of long-side euphoria. The futures curve flattened from a healthy contango, pointing to weaker confidence. These signals suggest the market is undergoing a necessary reset after excessive leverage.

The crypto market lost more than 160 billion dollars in just days. The main drivers were sticky US PCE inflation, inconsistent ETF inflows, and cascading leverage liquidations. The systemic effects included surging volatility, tighter margin rules, and weaker institutional participation. However, history shows that such deleveraging phases are often followed by stabilization, provided macro conditions improve.

For both investors and businesses, this episode underscores the importance of disciplined risk management. Daily monitoring of ETF flows, liquidation data, and macroeconomic releases is now essential to navigating such fast-moving markets. For deeper insights on global economic issues, readers are encouraged to continue exploring related articles on Olam News.

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BitcoinCryptoEthereumFinancial MarketsGlobal EconomyPCE Inflation