Why is the crypto market down today?

The crypto market is down today as a negative US inflation report and dwindling market liquidity weigh on investor sentiment.

Price action across the crypto market remains tilted to the downside as investors and businesses digest today’s higher-than-expected inflation and growing uncertainty over conflict events in the Middle East and Ukraine.

The market volatility led to a rush of liquidations and sent the crypto market total value locked (TVL) to lows not witnessed since March 2021.

Rising inflation impacts risk assets

The September Producer Price Index (PPI) print showed inflation higher than expected with a 0.5% increase. After today’s PPI print, Bitcoin (BTC) price fell to a two-week low.

Adding to the tender sentiment surrounding inflation, most major banks still expect the U.S. to experience a recession at some point in 2023.

According to U.S. Bank analysis, further interest rate hikes are likely and investor sentiment remains low in the current economy:

“U.S. equity performance is mixed in the early days of October amid higher-for-longer inflation and interest rate trends and ahead of third-quarter corporate earnings releases.”

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DeFi’s total value locked drops to a multi-year low

The TVL metric is a common way to examine the health and sentiment of proof-of-stake (PoS) blockchains like Ethereum (ETH) as well as measuring TVL across decentralized applications (DApps).

The current crypto market TVL of $36.8 billion is the lowest since Feb. 7, 2021. TVL across the crypto market is currently dominated by Lido (LDO) which holds nearly 38% dominance comparatively.

The drop in TVL is compounded by low trading volumes which are also down by 15%.

Futures liquidations drive the crypto market lower

When long derivative positions are liquidated without buying pressure from trading volume or large amounts of TVL, crypto market prices are negatively affected.

In the past 24-hours alone, nearly $50.3 million in long positions have been liquidated across the crypto market. The largest liquidation was a Bitcoin long on the OKX exchange, valued at $1.5 million.

Some analysts believe the macro economy remains strong enough for now to be a long-term buying opportunity for Bitcoin and other risk assets.

Related: Bitcoin ‘death cross’ sees BTC price dip $1K, erasing ‘Uptober’ gains

In the short term, the cryptocurrency market will continue to navigate multifaceted challenges and the ebb and flow of various economic factors will undoubtedly shape its trajectory for the foreseeable future.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.