Crypto market under pressure as investors eye FOMC decision this week

Digital assets are experiencing a significant decline today, with Bitcoin itself dropping from nearly $44,000 to test the $40,000 level, and this sell-off is extending to the altcoin market. We are witnessing weakened sentiment in both European benchmarks and Wall Street contracts, resulting in slight losses while U.S. dollar futures are gaining 0.12% which may suggest increased volatility in the crypto market, potentially influenced by the upcoming Federal Reserve interest rate decision on Wednesday at 8 pm. The cryptocurrency market's notable correction follows Bitcoin's eighth consecutive upward weekly candle, prompting profit-taking pressure after a robust rally that quickly propelled Bitcoin's price above $42,000. Data from Coinglass indicates a dynamic decline that liquidated approximately $270 million in long positions and $1.2 billion in open positions in the BTC options market, which currently holds a value of about $17.9 billion.

Despite the significant correction, there is no specific news in the cryptocurrency market justifying this downturn while on-chain data reveals that investors are depositing Bitcoins into cryptocurrency exchanges at a historically low rate, reaching the lowest levels since July 2020. This implies that investors are not eager to sell their Bitcoins despite the significant rally, suggesting limited supply, which generally favors higher prices and may be tied to an optimism towards the short-medium term prospects for the crypto market. The exceptional performance of Bitcoin in 2023, surpassing the rise of spot gold has led some to once again consider it the digital equivalent of gold and a potential safe haven. Although smaller cryptocurrencies have experienced substantial increases recently, their average performance in 2023 still trails behind Bitcoin and the second-largest cryptocurrency, Ethereum. On one hand this leaves significant room for growth, since there is historically a delay between a Bitcoin rally and altcoins catching up, but on the other, it may call into question the long term prospects for some of these lesser known projects.