Why did the cryptocurrency market plummet today?

The cryptocurrency market fell today, with the total market capitalization falling 7.68% from March 19 to $2.27 trillion.

Total market capitalization daily performance chart. Source: TradingView

Bitcoin, the leading cryptocurrency by market value, was down about 7% on the day to around $62,650. Ether, the native token of Ethereum, the second-largest cryptocurrency by market value, was down about 8% to $3,200 over the same period.

BTC/USD and ETH/USD daily price chart. Source: TradingView

Other top coins performed equally poorly.

Top cryptocurrencies and their 24-hour performance. Source: Messari

Let’s explore the reasons why the cryptocurrency market fell today.

Spot Bitcoin ETF hits largest single-day outflow

Today’s drop in cryptocurrency market capitalization coincided with the largest single-day outflow ever from a Bitcoin exchange-traded fund (ETF).

On March 18, the Grayscale Bitcoin ETF experienced an all-time high of $642.5 million worth of outflows. Meanwhile, Fidelity’s Bitcoin ETF saw a record low single-day inflow of $5.9 million, according to Farside Investors. This resulted in a net outflow of $154.3 million from the spot Bitcoin ETF.

Bitcoin ETF flow chart. Source: Farside Investors

The slowdown in capital inflows into Bitcoin ETFs occurred ahead of the March 20 Federal Open Market Committee meeting.

As previously reported, the potential for a bull run in Bitcoin and the cryptocurrency market in 2024 depends on the Federal Reserve shifting from tight to loose monetary policy, which could happen if inflation falls below 3% or if there are signs of a recession. Therefore, if high interest rates persist, the cryptocurrency market's rally could falter.

Overbought Correction

Today’s cryptocurrency market decline is part of a broader correction that began on March 14, when the market hit a local peak of around $2.72 trillion.

First, a bearish divergence signal preceded the correction, as can be observed through the increase in market capitalization contrasting with the decline in the daily relative strength index (RSI). A bearish divergence indicates that price growth is losing its underlying strength.

Total market capitalization daily performance chart. Source: TradingView

Second, the market’s daily RSI reached excessive levels before correcting, indicating overvaluation and causing a reduction in demand from traders who believed prices were too high.

Meanwhile, the sharp rise in net unrealized profit and loss (NUPL) and the rapid rise in Bitcoin prices signal a perfect opportunity for profit-taking.

Bitcoin Unrealized Net Profit and Loss (NUPL) chart. Source: CryptoQuant

Historical data shows that NUPL values ​​rarely sustain above 0.6 before leading to a significant price correction. Therefore, with a notable correction seen in March, a broader downward move may have already begun.

Long-term liquidations drive crypto market sell-off

A sharp drop in the price of major cryptocurrencies triggered a wave of liquidations in the derivatives market, catching bullish traders off guard and leading to a rapid round of liquidations of long positions.

Over the past day, the cryptocurrency market has seen position liquidations of more than $182 million, with long positions accounting for $140 million of the total.

Cryptocurrency liquidation heat map. Source: Coinglass

The liquidation of such long derivatives positions could lead to downward pressure on asset prices, especially if trading volumes lack sufficient buying momentum.