Cryptocurrency prices, led by Bitcoin, have seen a sharp decline in recent days, affected by inflation concerns and fluctuations in US monetary policy. Bitcoin’s value has fallen by 5%, while Ethereum has fallen by 8.5%. The CoinMarketCap 100 Index, which measures the performance of the 100 largest cryptocurrencies, has fallen by 6.80% in the previous 24 hours.
Analysts attribute the decline to economic data indicating continued inflation and statements by US officials about tightening monetary policy. Cryptocurrencies are expected to remain volatile as investors await important economic events this month, such as inflation data and the minutes of the Federal Reserve meeting.
Reasons for the decline: persistent inflation and tight monetary policy:
This decline is due to a combination of economic factors, according to analysts. Min Jung, an analyst at Presto Research, explained that concerns about continued inflation have affected markets in general, including cryptocurrencies and stocks.
She noted that the latest ISM data showed faster-than-expected economic growth in the United States, which led to higher bond yields and the yield on the 10-year Treasury note reaching its highest level since April.
Rachael Lucas, an analyst at BTC Markets, noted that Federal Reserve Chairman Jerome Powell’s comments in December, in which he indicated that the fight against inflation would continue, increased investor concerns about monetary policy. She added that market expectations are for U.S. interest rates to remain high for a longer period.
Bitcoin faces short-term pressure that could present opportunities for investors:
Bitcoin is facing short-term pressure as macroeconomic shifts and changing sentiment continue to weigh on bullish momentum. Despite hitting a record high of over $108,000 in December, Bitcoin has seen a reversal driven by a strengthening US dollar, increased volatility, and caution among traders.
Joe McCann, founder and CEO of cryptocurrency investment firm Asymmetric, has indicated that he is taking a more bearish view in the near term while maintaining a bullish long-term stance.
McCann emphasized that there are moments in bull markets where the likely outcome is a move downward, even for a few weeks, which could provide opportunities for additional returns.
In other words, short-term declines can be an opportunity for smart investors to make extra money by buying during the decline and selling when prices rise again.
More important economic data to come:
Analysts point out that Bitcoin’s trajectory will continue to be tied to macroeconomic conditions, including Federal Reserve policy and the performance of the US dollar.
“Although the positive regulatory outlook supports the market, structural (economic) risks could add to volatility in January,” QCP Capital wrote in a note to investors.
As these dynamics continue, cryptocurrencies will continue to face complex challenges and potential opportunities, putting investors in critical decisions about their strategies in the coming period.
In this context, investors are also awaiting key economic events later this month, including the release of the Federal Open Market Committee (FOMC) meeting minutes and non-farm payrolls data later next Friday, in addition to the release of the Consumer Price Index (CPI) data on January 15, which will help them gauge risks related to monetary policy and inflation.
The U.S. Treasury is expected to hit its debt limit in the middle of the month, forcing it to take special steps to continue paying government bills. That could lead to market volatility as debate over the issue intensifies.