Inflation data in the United States remained high, the total market value of crypto briefly fell below $1 trillion, and bitcoin fell by nearly 10% in 24 hours

Data released by the US Bureau of Labor Statistics on Tuesday showed that the US inflation rate in August was higher than expected, with an increase of 8.3% compared with the same period last year. After the release of the report, the US stock market opened lower, with the Nasdaq Composite Index down 5.16%, the Dow Jones Industrial Average down 3.94%, and the Standard&Poor's 500 Index down 4.32%.

The encryption market was also dragged down. According to Bitcom terminal data, as of the time of press release, Bitcoin hovered above $20000, with a 24-hour drop of nearly 10%, exceeding the drop of the S&P 500 and Nasdaq Composite Index. Ethereum fell by more than 7%, and the total market value of all crypto assets once again fell below $1 trillion, down about 7% from $1.07 trillion to $998 billion on the same day.

According to the data of Coinglass, a crypto derivatives aggregator, in the past four hours, positions worth more than 340 million dollars in the derivatives market have been liquidated, of which about 75% are long and short BTC positions.

This seems to imply that the fate of cryptocurrencies is still largely tied to the actions of the Federal Reserve.

The Federal Reserve will meet on September 21, and analysts predict that the central bank may choose to raise interest rates by 75 basis points again. According to the data of Zhishang, after the CPI report was released, the futures market predicted that the probability of raising interest rates by 75 basis points in late September was 82%.

Danielle DiMartino Booth, chief executive officer and chief strategist of Quill Intelligence LLC, said in a panel discussion at the New York Digital Assets Summit on Tuesday: "The Fed's tightening cycle has led to so many recessions, which is why the modern Federal Reserve has begun to view financial conditions as a bridge connecting the real economy, the market and stock prices."
Baxter Hines, chief investment officer of honeycomb digital investments, a crypto investment manager, said in an interview with Yahoo Finance that there was no need to panic about the sell-off. He said: "Bitcoin and other more forward-looking cryptocurrencies often reflect the negative factors expected in the near future. The threat of inflation gives the Federal Reserve more room for manoeuvre, which may raise interest rates faster than we thought. Now the mood around risky assets may be very bad, so that the market may have room for growth in the next year.".

Since the beginning of this month, volatility trading companies that can take market neutral positions on various crypto assets have seen a lot of new opportunities.

According to the data of Nomics, the crypto index tracker, in the past week, the crypto trading volume of all exchanges increased by 62% to $739 billion, and the dollar denominated trading activity in the past 24 hours increased by 20% to $134 billion.

The surge in activity may be partly due to traders and fund managers preparing for the merger and upgrading of Ethereum later this week. Ed Moya, senior market analyst of OANDA, pointed out that traders may be ready to respond to the long-awaited outcome of the Ethereum merger by "selling news".

Glassnode data shows that Bitcoin has not crossed in the current cycle, which historically marks the late bear market period. During the current bear market, the intersection of realized price (RP) of STH (short-term holder) and LTH (long-term holder) has not occurred.

The realized price is an indicator to measure the cost base of ordinary holders of Bitcoin market. It is calculated by dividing the realized market value by the total number of tokens in circulation. When the normal price of BTC is lower than the value of this indicator, ordinary investors will fall into a loss state. Long term holders (LTH) include all Bitcoin investors who have held Bitcoin for at least 155 days, while short-term holders (STH) are Bitcoin investors who have held Bitcoin for less than 155 days.

As shown in the figure above, the realized prices (RPs) of these two indicators have crossed during the past two bear markets. In these cycles, the lth RP crossed the sth RP at the beginning of the late bear market. The implication of this crossover is that the recently purchased tokens (the past 155 days) are now more profitable than those purchased long ago, indicating that the market has experienced a deep retreat.

However, during the current bear market, there has not been any such crossover, even after 10 months of decline has been observed. This indicates that the current bear market still needs some time to end, because the crossover has not yet occurred.

Looking at the performance of the crypto market in the second half of September, Moya believes that if the prices of the major cryptocurrencies (bitcoin and Ethereum) can be maintained at above $21000 and $1600 respectively, the market may still rebound.