Crypto Crash Deepens as Liquidations Surge, Recovery Signs Emerge

The ongoing crypto crash worsened on Friday as Bitcoin and most altcoins continued their freefall. As a result, the market capitalization of all coins dropped to $2.8 trillion from the all-time high of $4.27 trillion. This article explores some key reasons why a crypto recovery is possible.

Crypto Crash Accelerates as Liquidations Jump

The ongoing crypto crash intensified on Friday, triggering a wave of liquidations. Data compiled by CoinGlass shows that liquidations in the industry jumped by 220% to over $2 billion.

Over 406,000 traders were liquidated, with one Bitcoin bull on Hyperliquid losing over $32 million. A liquidation occurs when a broker or exchange closes a loss-making trade when it reaches a key level. The closing happens as the exchange works to preserve the margin.

Liquidations push cryptocurrency prices lower because they normally close bullish trades. This leads to more selling pressure. The ongoing crash and liquidations were triggered by the ongoing sense of fear in the crypto industry.

Data shows that the Crypto Fear and Greed Index dropped to the year-to-date low of 11. This fear triggered a panic selling among investors, a process known as a shakeout.

Top Reasons a Crypto Rally is Still Possible

There are a few reasons why the crypto market rally could be around the corner.

Crypto Market Crash to Encourage Responsible Trading

First, the ongoing crypto crash is likely to prompt investors to adopt more responsible trading practices. It will reduce excessive leverage and encourage safer strategies.

Futures data confirms that deleveraging is underway. Open interest plunged 12% in 24 hours, dropping to $123 billion.

It has dropped to the lowest level since June and is down sharply from the year-to-date high of $320 billion.

Crypto Fear and Greed Index is at Extreme Levels

The Fear and Greed Index has been plunging for months. This sharp decline reflects sentiment from the ongoing Crypto Crash. Such extreme fear often sets the stage for a potential market rebound.

In most cases, crypto prices normally drop when the Fear and Greed Index is falling and rise when greed is in an uptrend.

Reversals, on the other hand, happen when the index moves to extreme levels. A good example of this is what happened in April this year when Donald Trump announced his reciprocal tariffs.

At the time, the Bitcoin price crashed, and the Crypto Fear and Greed Index moved to 17. This was the turnaround, and Bitcoin jumped to a record high in May.

Odds of Federal Reserve Interest Rate Cuts are Rising

The other notable catalyst for the crypto market rally will come from the United States. There, the Federal Reserve will deliver its interest rate decision next month.

Some Federal Reserve officials warn that inflation is still too high. They believe cutting rates now could make it worse.

However, traders on Polymarket and other platforms believe that the bank will cut interest rates in December. Odds of a cut have jumped from 50% on Monday to 68% today.

Most importantly, the Federal Reserve is expected to deliver more cuts in 2025. This could happen if Donald Trump replaces Jerome Powell with a dovish official.

Stephen Moran, a recent appointee, has emerged as the most dovish voice on the committee. He backed 0.50% rate cuts in each of the last two meetings. Cryptocurrencies and other risky assets do well when the bank is in a dovish mode.

Macro Factors to Boost Crypto Prices

Other macro factors will boost the crypto market in the coming months. The Global M2 money supply has jumped to a record high. It’s a move that typically supports cryptocurrencies and other risky assets.

Japan launched a $152 billion stimulus package on Friday, while China is implementing a trillion-dollar one. These macro factors, together with the friendly regulations in key countries, will boost these token prices.