The total cryptocurrency market capitalization (TOTAL) dipped on Oct. 22, undoing all the gains made over the past few days. The sell-off may have resulted from investor fear of spillover effects from the stock market and a strong US dollar reducing traders’ confidence in Federal Reserve rate cuts. 

The total crypto market capitalization has dropped by approximately 1.5% in the last 24 hours to reach $2.3 trillion. The drop in market cap includes losses from Bitcoin BTCUSD and Ether BTCUSD, which have fallen by around 1.6% and 2.8%, respectively.

Let’s look at the factors driving the crypto market down today.

Risk-off sentiment pushed the crypto market down

Today’s rally mirrors the weakness witnessed in US equities. The S&P 500 dropped from its new all-time high at 5,878.46 reached on Oct. 17, and closed 0.18% down on Oct. 21. This performance highlights the impact of the decline in the valuation of the largest companies listed on stock exchanges in the United States.

The Dow Jones index closed 344 points, or 0.8% lower, while the Nasdaq Composite index pulled up 1.4% to close the day at 18,540.01. 

In the meantime, the US Dollar Index (DXY) gained strength after Wall Street opened on Oct. 21, reaching its highest level since early August at 103.67. 

At the time of publication, the index is turning down from its multimonth high. The Richmond Fed Manufacturing Index for October is the only data to be released on Tuesday, Oct. 22. 

Nevertheless, market participants still have their focus on the Fed’s decision following a two-day Federal Open Market Committee (FOMC) meeting scheduled for Nov. 6 and Nov. 7.

The US central bank is expected to continue cutting rates on Nov. 7, but it may not be as aggressive as the 50 basis point cut it began with on Sept. 18.

According to data from CME Group’s FedWatch Tool, the odds of a 0.5% rate cut at the Nov. 7 FOMC meeting have reduced to 0% at the time of writing, against an 89.9% expectation of a 0.25% rate cut and an 11% possibility of rates remaining unchanged.

Over $200M in liquidations catch crypto traders offside

Long traders—those betting on the crypto market’s upside—have witnessed a total of $171.2 million worth of liquidations in the last 24 hours. In comparison, short traders suffered over $30 million in liquidations in the same period.

Ether liquidations reached $58.8 million over the last 24 hours, with over $57 million worth of cumulative leveraged long positions liquidated on the day, according to CoinGlass data.

The total liquidations across the wider crypto market stand at $201 million over the last 24 hours, with the tally increasing at the time of publication.

When long positions are liquidated, traders who are betting on prices going up are forced to sell their positions, often at a loss. This increased selling pressure has driven the crypto market valuation lower today.

Meanwhile, the open interest reduction signals a decrease in active futures contracts, indicating that traders are closing their positions and stepping back from the market.

Nonetheless, funding rates of most top coins, including Bitcoin and Ether are positive, indicating that traders still in the market are generally more bullish, as they are willing to pay more to maintain long positions.

Weakening market structure points to more losses

From a technical standpoint, TOTAL—the crypto market cap of all cryptocurrencies—trades inside a prevailing descending parallel channel, which has been in play since March 2024.

The rally above $2.35 trillion on Oct. 21 failed to break through the upper boundary of the falling channel at $2.36 trillion. A daily candlestick close below this level would signal a possible continuation of the correction, which could see bulls retreat to seek support from the channel’s middle boundary at $.2.06 trillion, as shown in the weekly chart below.

Lower than that, TOTAL may drop toward the support line of the governing chart pattern at $1.89 trillion. Such a move would represent a 17% drop from the current level.