Key Points
- The total crypto market capitalization experienced a significant drop on the 26th of August.
- Market sentiment and liquidity were identified as key factors driving the downturn in crypto prices.
The overall sentiment in the crypto market took a negative turn, leading to a pull in prices towards liquidity pockets. Both Bitcoin and Ethereum were met with resistance at their respective zones.
On August 26, the total crypto market capitalization went down from $2.216 trillion to $2.041 trillion the following day, marking a drop of $215.87 billion or 9.7% across the market. Some tokens were hit harder than others.
Market Recovery and Participant Behavior
In the last 24 hours, market prices have started to bounce back. Bitcoin [BTC] and Ethereum [ETH] saw increases of 3.84% and 6.82% respectively. But, what caused the crypto slump since the 26th?
The Tether dominance chart, which measures Tether’s market capitalization as a fraction of the total crypto market cap, showed that USDT.D increased by 10.91% from Monday, hitting a resistance zone at 5.9%. After this, it declined. There is an inverse relationship between the Tether dominance and crypto price movements.
When USDT.D rises, it indicates that more investors are trading their crypto for Tether, suggesting a lack of confidence and an increase in sell pressure. This pressure has reduced in recent hours, and a price bounce was observed across major altcoins and for Bitcoin.
Liquidity and Market Reaction
The Tether exchange reserve has been on an upward trend since early August, signaling a rise in buying power in the market. However, it’s uncertain when the crypto market prices would start to rally, but the metric indicates potential for growth.
Investors moving to stablecoins is a reliable indicator of market sentiment. Another method to predict where prices might head is through the liquidation charts. Given that Bitcoin and Ethereum are the largest assets and most altcoins’ price performance is closely correlated with them, their liquidation heatmaps were examined.
On August 27, Bitcoin fell through several short-term liquidity clusters, quickly hitting the $58k liquidity pool. It has since stabilized, but liquidity remains a crucial factor in price movements.
Ethereum also encountered a dense cluster of liquidation levels at $2490, but ETH continued to fall and hit the $2415 pocket. It seemed to be heading towards the $2.6k liquidity band at the time of writing.
Liquidity and market sentiment were identified as the main reasons for the crypto downturn. The move resulted in millions of dollars in liquidations, and the crypto market may stabilize in the coming days.
