As the cryptocurrency markets experience a surge, everything seems splendid. However, the painful side of cryptocurrencies cannot be ignored. Although such warnings may appear bothersome during a rally, the market could potentially see a decline this coming Tuesday and Wednesday. What lies ahead next week, and why should cryptocurrency traders exercise caution?
Could Cryptocurrencies Face a Decline?
The rally, which has been ongoing for the past two days and accelerated in recent hours, is primarily linked to the liquidation of accumulated short positions. We’ve witnessed billion-dollar liquidations, and the actual figure might be even higher.
Let’s pause for a moment. Last year, CryptoQuant CEO Ki Young Ju stated that Coinglass liquidation figures did not fully reflect the total liquidations within exchanges and DeFi protocols. Back then, the actual liquidations were more than double the reported long liquidations. Thus, today’s liquidations in the $1-2 billion range could be much higher than they appear.
Is it possible for this rally driven by short position liquidations to reverse? It certainly is, and there are numerous triggers that could cause this. Market makers might wait for more long positions to accumulate (and large investors benefiting from volatility) and then trigger a rapid decline using justifications such as those listed below.
Cryptocurrencies inherently exhibit high volatility, and the price has now broken upwards. However, it is crucial to heed the details in the second section.
Why Might Cryptocurrencies Decline?
If a decline occurs, it seems likely due to the following reasons:
- Trump had indicated he would send a tariff letter to the EU on July 10, but he delayed it, possibly due to negotiation attempts. If an agreement fails soon, Trump might send the letter at the market’s closure or over the weekend, fueling inflation concerns and fears of delayed interest rate cuts, providing an excuse for a market drop.
- The Fed is expected to cut rates twice this year. Although tariff letters have lowered rate expectations, the scenario seems feasible. Without a change in the rate outlook, the market’s rise could quickly fizzle out without more volume support.
- July 15 and 16 are crucial dates. The Fed will review the CPI and PPI data before the July rate decision. A rise in CPI and core CPI is expected. If concerns about the U.S.’s effective tariff rate exceeding 15-20% spread and data surpass expectations, the Fed might not cut rates even in September, potentially signaling this at the month-end meeting.
- If this is a false surge, the forthcoming July data could swiftly erode crypto capital, just as short positions faced massive liquidations. With exchanges and major investors profiting from both declines and rises, they see a significant opportunity.
- Trump’s unpredictability is well-known. Recent recordings reveal threats to China if Taiwan is intervened. If this was deliberately leaked, U.S.-China tensions may be beyond estimation. The geopolitical lessons from Iranian incidents are fresh in memory.
- While Trump enjoys market rises, he also aims for significant revenue through tariffs. Despite a great opportunity to remove tariff uncertainties on July 9, a 3-week extension was observed. Could this signify a false rise amid ongoing tariff uncertainties?
If we had a crystal ball, contemplating risks and likelihoods would be unnecessary. Today, the weather is pleasant, and cryptocurrencies are rising. However, we must not forget the inherent nature of crypto. It’s beneficial to evaluate stop regions and take appropriate precautions by protecting your cash balance and managing risks.
