The crypto market has started December in the red, shedding over $200 billion in total market value to settle at $3 trillion, its lowest level over the past week.

Bitcoin (BTC), the world’s largest crypto asset, dropped below key support levels and is now down 31.6% from its all-time high. Ethereum (ETH) slipped 6% on the day to trade near the $2,800 mark, while XRP (XRP) was down over 7% at the time of writing.

Other major cryptocurrencies, such as Solana (SOL), Dogecoin (DOGE), and Cardano (ADA), also traded lower, recording losses between 7-8%, while some of the biggest laggards included Zcash (ZEC), Ethena (ENA), and Aave (AAVE), with double-digit losses between 14-19%.

The combined impact of these sharp declines across leading assets dragged the broader crypto market down by 5.3% in the past 24 hours, bringing the total market cap to $3 trillion, the lowest level recorded in the past seven days.

Crypto market sees $640 million in liquidations

The crypto market fell today amid massive liquidations that occurred during thin liquidity on exchanges and highly leveraged positions by traders. Notably, liquidity in the crypto markets tends to thin out during late Friday and early Monday hours, with fewer market makers active during weekend hours, and even small sell orders can lead to sharp price swings.

A similar occurrence took place today. Despite the absence of any major news, Bitcoin lost about $4,000 within minutes overnight, forcing liquidations for some highly leveraged long positions from traders.

With leverage across futures markets sitting at record highs right now, the dip from these liquidations triggered a chain reaction across derivatives platforms. Each liquidation triggered more selling pressure, and a small move quickly turned into a broader cascade that dragged down the entire market.

Data from CoinGlass show that total liquidations across the crypto market reached $641 million, with long liquidations accounting for $564 million. The majority of these losses occurred within the past 12 hours, highlighting the severity of the overnight crash and the fragility of the current trading environment.

Uncertainty over Fed policy

Market sentiment also seems to have remained subdued over concerns surrounding the possibility of another Federal Reserve rate cut during the central bank’s December meeting.

Although some officials have indicated they may support an interest rate cut, recent statements by Chairman Jerome Powell have increased caution among traders ahead of the upcoming FOMC meeting. The market is also reacting to the end of quantitative tightening on Dec. 1, which affects liquidity conditions and investor appetite for risk assets like cryptocurrencies.

Historically, cryptocurrencies tend to rally when the Federal Reserve adopts a dovish stance or signals a willingness to ease policy, and often retreat when the Fed takes a more hawkish approach.

At press time, the Fear and Greed Index has fallen back to an extreme fear reading, a level that has remained persistent throughout last week and continues to weigh on investor sentiment.

Strong ETF outflows

Traders are also likely staying cautious as demand for spot crypto funds in the United States continues to remain weak, particularly for Bitcoin and Ether ETFs, suggesting a slowdown in institutional participation. These funds have played a key role in supporting the broader crypto market rally this cycle.

As per data from SoSoValue, the spot Bitcoin ETFs recorded nearly $3.5 billion in net outflows in November, a stark reversal following two strong months for these ETFs, where they had seen $7 billion in net inflows. Their Ethereum counterparts fared no better, seeing $1.42 billion in outflows over the past month.

Weak demand is typically interpreted as a sign of reduced institutional conviction, which can deter traders and keep many sidelined during periods of low momentum.