- The crypto market unexpectedly turns red just as assets near new all-time highs.
- May US employment report likely triggered the decline.
- Disappointing GameStop Q1 earnings also contributed to the dump.
Things in the crypto market were just starting to sizzle after the SEC’s unexpected approval of Ethereum ETFs sparked a bullish rally. The regulator’s surprise, coupled with several other positive news, breathed life into many assets, propelling them close to their all-time highs after a sluggish start in May.
With Bitcoin charging ahead, closing in on the $72,000 mark for the first time in months, it seemed the crypto market was a rocket ride to the moon. But, as often is the case in the Wild West, just when things were looking up, the market pulled a fast one, sending assets spiraling and triggering a fresh wave of panic.
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The main culprits? A surprisingly strong US job report and GameStop.
Strong US Job Report Rattles Crypto Market
Earlier on Friday, June 7, Bitcoin and the overall crypto market seemed poised to surge toward new highs, having flipped previously unbreakable resistances into solid supports earlier in the week. Given the positive conditions, traders bet on the market to maintain momentum.
However, after the weather took a sudden turn, hopes of the rally sustaining were forced to take a rain check.
Bitcoin went from hovering above $72,000 to $69,000, marking a 5% drop. The decline sent shockwaves through the market, dragging down other altcoins like Ethereum, Solana, Ripple, and Cardano. According to Coinglass data, the sudden dip wiped out $450 million from traders’ pockets, the biggest loss since mid-April.
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The US government’s employment report is likely one reason why the crypto market screeched to a halt. A whopping 272,000 jobs were added, far exceeding expectations and dampening hopes for an interest rate cut by the Federal Reserve.
Since job growth boosts consumer spending, which drives prices up and fuels inflation, it wouldn’t be wise for the Federal Reserve to introduce rate cuts now. The market likely priced in the possibility that the FOMC will hold rates steady for another month to prevent the economy from overheating.
While the employment report dented the overall bullish sentiment in the crypto market, GameStop’s earning class also delivered a heavy blow.
GameStop’s Q1 Report Accelerates Crypto Market Decline
The crypto market’s decline on Friday accelerated further after Keith “Roaring Kitty” Gill returned to YouTube Livestream for the first time in years to address his GameStop investment. Gill is largely credited for beginning the meme stock mania, which ultimately led to the inception of meme coins. The legendary investor is renowned for sending the prices of stocks such as GameStop and AMC soaring.
Earlier this week, Gill returned to Reddit to flaunt his jaw-dropping $583 million position in GME shares, showing a $382 million profit across options and equity positions.
Gill’s flex led to the stock surging 47% the same day and peaking at $61 in after-hours trading as retail traders rushed in to follow the meme stock sweetheart. However, just as Roaring Kitty teetered on the edge of billionaire status, GME plummeted a staggering 40% before trading was halted.
The culprit behind GameStop’s dramatic fall? Disappointing Q1 earnings. The video game retailer posted net sales of $881.8 million, a sharp decline of 29% from $1.237 billion a year prior. GameStop reported a loss of $32.3 million for the quarter, a narrower loss than the $50.5 million the previous year. Given Gill’s cult-like following, it’s possible that many traders were over-leveraged, leading to a cascading effect.
The sudden liquidation of GME likely rippled into the crypto market, triggering similar liquidations. Those who followed Roaring Kitty’s lead might have had to sell off other assets, including cryptocurrencies, to cover their losses or meet margin calls, exacerbating the plunge in the crypto market.
On the Flipside
- Many GameStop-inspired meme coins, including GME and Roar, fell at least 30% following Roaring Kitty’s stream.
- The Federal Reserve has held interest rates at 5.25% since July 2023 to anchor high inflation.
Why This Matters
The US job report is just the tip of the iceberg, signaling potentially choppy waters ahead for the market. With the pending Consumer and Producer Price Index reports and the FOMC meeting on the horizon, the current wave of liquidations might be the prelude to an exceptionally volatile month.
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