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Today, the cryptocurrency market is experiencing a downturn as traders evaluate how the Depository Trust Company’s decision to exclude Bitcoin ETFs from collateral recognition will affect price.
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The cryptocurrency market is down today, with the total market capitalization falling by 2.82% to $2.23 trillion on April 29.
Bitcoin (BTC), the largest cryptocurrency by market capitalization, has fallen 1.84% to around $61,940. Meanwhile, Ether (ETH), the second-largest crypto, has underperformed Bitcoin and the rest of the market, dipping 3.28% to trade around $3,155 on the same day.
TOTAL crypto market capitalization vs. BTC/USD and ETH/USD year-to-date performance chart. Source: TradingView
DTC denies collateral for crypto-linked ETFs
The valuation of the cryptocurrency market began to decline following the Depository Trust Company’s (DTC) decision not to recognize crypto-linked exchange-traded funds (ETFs) as collateral for line-of-credit facilities.
TOTAL crypto market cap. Source: TradingView
A line of credit is money that financial institutions can borrow to facilitate the clearing and settlement of trades. This financial tool helps ensure that transactions can be completed smoothly and efficiently, even if there are temporary shortfalls in liquidity among the participating parties.
DTC, a central securities depository, manages the settlement of securities transactions. So, its decision not to give collateral value to crypto-linked ETFs indicates that participants cannot use these funds as security to borrow short-term loans, which may affect the liquidity and operational flexibility of financial institutions dealing with these products.
“There’s also a risk that other big companies might follow DTC’s lead and make similar rules,” argued independent market analyst Sakuzi, adding:
“This could further impact crypto markets and make it harder for firms to use crypto as collateral.”
Bitcoin ETF outflows continue
Today’s crypto market drop also follows days of outflows from the U.S.-based spot Bitcoin ETFs.
Notably, these funds have witnessed $421.8 million worth of outflows since April 24, coinciding with a 4.75% drop in the crypto market capitalization. This indicates a cooling-off period in which investors are reducing their exposure to risk.
Bitcoin ETF flow table. Source: Farside Investors
Crypto traders have become overly cautious after the U.S. economy’s underperformance in the first quarter of 2024 against a stick inflation.
These disappointing metrics may cause the U.S. Federal Open Market Committee to pursue a higher-for-longer interest rate policy in its meeting on May 1, making riskier assets like crypto less attractive for traders and institutional investors alike in the near future.
Source: X
Technical correction trend
The crypto market’s decline today is part of a correction trend that began on March 14, when the market valuation peaked for the session at around $2.721 trillion. Since then, the market is consolidating inside what appears to be a bull flag pattern, as shown below.
TOTAL crypto market cap daily performance chart. Source: TradingView
As of April 29, the market was eyeing a decline toward the flag’s lower trendline at around $2.119 trillion. Notably, this level has served as support at least thrice since the beginning of March, increasing the market’s prospects of rebounding toward the flag’s upper trendline at around $2.40 trillion by May.
Related: Crypto trader sees best ‘altseason’ since 2017 as Bitcoin price cools
The market’s bullish target is around $2.945 trillion by June if the bull flag breakout is confirmed with a rally above $2.4T, and a break above the upper trendline alongside rising trading volumes.
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.
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