Risk aversion is on the rise, with the market waiting for the Fed's interest rate cut guidance

Original title: "The market continues to consolidate, waiting for the Fed's interest rate cut guidance"

Original author: Mary Liu, BitpushNews

Investors are waiting for the Federal Reserve and its upcoming interest rate decision and May's Consumer Price Index (CPI). The cryptocurrency market opened lower this week.

According to Bitpush data, Bitcoin once broke through the $70,000 mark in the early trading session, reaching a high of $70,195, and then fell back in the afternoon to the support level near $69,600.

Altcoins fell more than they rose, with Polymesh (POLYX) leading the way among the top 200 tokens by market capitalization, rising by 9.7%; followed by Gnosis (GNO), with a rise of 8.6%; Livepeer (LPT) rose by 5.5%. Wormhole (W) led the decline with a 18% drop; Biconomy (BICO) fell by 17.1%; Echelon Prime (PRIME) fell by 10%.

The total market capitalization of cryptocurrencies is 2.53 trillion US dollars, with Bitcoin's dominance at 54.1%.

As of Monday's close, the S&P 500, Dow Jones, and Nasdaq indexes all pumped, rising 0.26%, 0.18%, and 0.35% respectively.

The FedWatch tool of the Chicago Mercantile Exchange shows that traders' expectations of a rate cut by the Federal Reserve in September have fallen from 60% a week ago to 49%.

ETF inflows continued

Spot Bitcoin exchange-traded fund (ETF) inflow data is relatively optimistic, with $131 million flowing into the ETF product on Friday, marking the 19th consecutive day of inflows.

CoinShares' report shows that last week saw a total of $1.83 billion flowing into the US-listed spot BTC ETF, while the net inflows of globally listed digital asset investment products reached $2 billion, with the total inflows over the past 5 weeks reaching $4.3 billion.

James Butterfill, Research Director at CoinShares, analyzed, 'We believe that this change in sentiment is a direct response to weaker-than-expected macro data in the United States, which has brought expectations of monetary policy easing. The positive price action has pushed total Assets under Management (AuM) above $100 billion for the first time since March.'

Cryptocurrency analyst Timothy Peterson said on X platform that if the current rate continues, the influx of funds into spot BTC ETF will potentially push BTC to a new all-time high on July 31. In addition, if liquidity continues at the current pace, the price of BTC will reach $135,000 by the end of the year.

Short-term leverage surge

Bitfinex analysts hold the opposite view and say: 'In the past 20 trading days, the influx of ETFs has helped offset the pressure on BTC, but in fact, this cannot further push up the price or push BTC above the high point of the range, which is unfavorable in the short term. On the contrary, traders are executing basic arbitrage trades, holding long spot positions and short perpetual futures to hedge'.

As shown in the above figure, the open interest (OI) of BTC and altcoins has been high. According to Coinglass data, the BTC OI on major exchanges reached a record high of $36.8 billion on June 6th. Despite a pullback in price on Friday, the OI is still above $36 billion.

Analysts say, "We believe Friday's decline is more like 'leverage washout,' where a large number of altcoins (and to some extent major currencies) long leverage is wiped out, and the funding rate is neutralized. However, despite the severe clearing of altcoin leverage, we do not expect a sharp decline immediately."

The long position liquidation amount in the encrypted market on June 7 exceeded 360 million US dollars, and the total liquidation amount exceeded 410 million US dollars, which is the highest level since April 14, exceeding the level when BTC fell below 57,000 US dollars, but this time only 50 million US dollars of long position liquidation came from BTC.

Analysts explain that most of them are alts, which explains the significant drop in altcoins compared to mainstream currencies last week. Such liquidation events typically do not cause further significant declines, so this week will be crucial as the consumer price index inflation report, which is scheduled to be released on June 12, is expected to be a major market catalyst. With the increase in derivative positions, prices are expected to continue fluctuating in a tense environment.

Bitfinex believes that, in the current environment, maintaining a local low point of around $68,000-$68,500 for BTC is crucial for the bulls, and failing to break through the high end of the range will further pressure the bulls.

Regarding the monetary policy of the Federal Reserve, analysts at Bitfinex say that maintaining high interest rates in the long term is a double-edged sword and requires clever handling:

On the one hand, the strength and adaptability of the US economy enable it to thrive even in a high interest rate environment, thanks to robust labor demand and continuously rising wages. This situation will support sustained economic growth, steady consumer spending, and overall economic resilience.

On the other hand, maintaining a high interest rate for too long also carries significant risks, which may suppress economic activity, lead to reduced investment, slowed job growth, and potentially result in an economic downturn.

Analysts also indicated that the recent interest rate cuts by the European Central Bank and the Bank of Canada were aimed at 'shifting to a more accommodative monetary policy to promote economic growth,' indicating that the Fed may need to reassess its own monetary policy, as the actions of its global counterparts could influence its decisions in the coming months, especially if inflation trends and economic conditions require a shift.

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