Cryptocurrencies experienced a significant decline on Tuesday, with bitcoin continuing its recent downward trend as investors anticipated the Federal Reserve’s upcoming rate decision.

Bitcoin’s price dropped by 3% to $67,582.34, according to Coin Metrics. This decline extended from Friday when bitcoin retreated from the $70,000 mark, reaching a low of $66,140.67 earlier in the day. Bitcoin started the day trading near $70,000 before hitting a three-week low of $66,170 during the U.S. session. It slightly rebounded to near $66,500 but was still down nearly 5% over the past 24 hours.

Ether also fell by 4.8% to $3,496.32. Altcoins saw even deeper pullbacks, with Ethereum’s ether breaking below $3,500 and down 6.5%. Solana, Dogecoin, Cardano’s ADA, and Chainlink’s LINK endured 6%-9% losses. The broader cryptocurrency market and related equities, such as Coinbase and MicroStrategy, each saw declines of more than 2%.

The sudden pullback incurred over $250 million in liquidations of leveraged derivatives trading positions across all crypto assets, CoinGlass data shows, marking the second significant leverage flush in a week after Friday’s $400 million liquidations. Liquidations occur when an exchange closes a leveraged position due to a partial or total loss of the trader’s initial money down, or “margin,” because the user fails to meet the margin requirements or doesn’t have enough funds to keep the position open.

Bitcoin’s losses might be attributed to a wave of long liquidations, where traders are forced to sell their assets at market prices to cover their debts. Over the past 24 hours, $56 million in long bitcoin liquidations occurred across centralized exchanges, as reported by CoinGlass. Another $56 million in long bitcoin liquidations were seen on Thursday, preceding the release of a better-than-expected May U.S. jobs report on Friday. Bitcoin fell back under $70,000 after briefly testing that level earlier in the month.

Similar to stock market investors, crypto traders are concerned that the Federal Reserve may not reduce interest rates this year. The central bank has begun its two-day policy meeting and is expected to announce its decision on Wednesday. Investors are bracing for a key U.S. inflation report and Federal Reserve meeting on Wednesday, with the May Consumer Price Index (CPI) report being particularly anticipated.

“When equities sell off, other risk assets follow,” said Bartosz Lipiński, CEO of the crypto trading platform Cube.Exchange. “This feels largely like the market is losing confidence that the Federal Reserve will cut interest rates anytime soon … and greater fears about the impact of high rates over the long term are beginning to take hold.”

“One look at options positioning shows long-term expectations are for a rally,” he added. “For now, though, we may continue to see volatility until there is a clearer picture of the Fed’s plans for the remainder of the year.”

Lipiński also noted that the sell-offs on Tuesday and last Friday are further evidence of the ongoing “malaise” in the market. Despite spot ETH ETFs seemingly being on the verge of coming to the market in the U.S., there has been no real catalyst to drive prices higher.

K33 Research highlighted that Bitcoin could see a volatile session on Wednesday as it has been “highly responsive” to economic data recently, with its 30-day correlation with U.S. equities climbing to the highest since 2022. They noted, “The stage is set for a frantic macro-Wednesday, with both May CPI data and the Fed’s interest rate decision poised to move the market.”

Market observers also pointed out some positive signs during the sell-off that could indicate a quick recovery. Underlying fundamentals are strong for bitcoin, with supply being hoarded by ETFs, but sentiment has yet to catch up. Investors will closely monitor the Federal Open Market Committee (FOMC) members’ interest rate outlook – the so-called “dot plot” – to see how many rate cuts policymakers are projecting for this year in light of recent sticky inflation readings and softer economic data.

“The FOMC dot plot, alongside forward guidance during Jerome Powell’s press conference, is likely to be the most material price movers, as BTC has resumed its attentiveness to the market’s interest rate expectations,” K33 analysts said.

As the market prepares for the potential impacts of the Fed’s decisions and economic data, the coming days are expected to bring significant volatility and potential shifts in the cryptocurrency landscape.