Jay Powell's message about potential rate cuts has lost its initial boost, as cryptocurrency prices have pulled back.
Earlier this week, the crypto market saw over $313 million in liquidations after Bitcoin fell below $60,000.
Long traders took the brunt of the hit, accounting for 90% of total liquidations, which amounted to $282 million. This is significantly higher than the $31.36 million in short liquidations.
Ethereum topped the liquidations chart with over $100 million, including $93.52 million in liquidated long positions. Bitcoin came in next, with more than $94 million in liquidations, with $85.97 million from long positions and $8.87 million from short positions.
Bitcoin price dropped below $60,000 late Tuesday, down from a session high of $63,000, and stayed under that level in early Wednesday trading.
This latest decline deepened Bitcoin's monthly losses. The leading cryptocurrency started August trading at $65,000 per coin. Currently, traders are paying around $59,000, reflecting a 9% drop for the month.
Since reaching a record high of over $73,000 in March, Bitcoin has been volatile, with prices swinging between gains and losses each month.
Ethereum, the second-largest cryptocurrency, has fared even worse. Its price dropped more than 10% on Tuesday, falling below $2,500 from an opening level of nearly $2,700.
In the longer term, ETH price has been hit harder than Bitcoin, with losses extending for a third consecutive month, totaling a 36% decline. This downturn continues despite the launch of nine spot Ether exchange-traded funds, which have yet to turn a profit.
The recent drop didn’t have a specific cause, aside from possible profit-taking after the optimistic remarks from Federal Reserve Chair Jerome Powell. Last week, Powell indicated at the Jackson Hole forum that interest rate cuts are anticipated in September. Although cryptocurrencies operate outside the traditional banking system, they aren’t entirely shielded from the effects of interest rate changes.
Cryptocurrencies are often seen as a hedge against inflation and currency devaluation due to their limited supply and decentralized nature. In times of rising inflation and higher interest rates, some traders may turn to cryptocurrencies as a store of value to protect their wealth from the eroding effects of inflation. This increased demand can drive up cryptocurrency prices. However, if higher interest rates successfully curb inflation, the perceived need for an inflation hedge might diminish, potentially lowering demand for cryptocurrencies.