Author: BitpushNews
Due to rising U.S. Treasury yields and investors adjusting expectations for the Federal Reserve's monetary policy, the dollar index (DXY) hit a new high, and the cryptocurrency market experienced a pullback for the second consecutive day.
CMC data shows that in the past 24 hours, BTC briefly fell to an intraday low of $92,600, and as of the time of writing, it has rebounded to around $94,400, still down 2.1% in the past 24 hours, while Ethereum has fallen to around $3,330.
This trend is closely related to the strong economic data released in the U.S., including a surge in job vacancies and manufacturing performance exceeding expectations. This data further reinforces Federal Reserve Chairman Powell's view that aggressive rate cuts may not be necessary this year to effectively control inflation. 'Fed mouthpiece' Nick Timiraos pointed out that the minutes from today's Federal Reserve meeting further indicate that officials are generally willing to maintain interest rates at current levels in the meeting scheduled for the end of this month. As a result, the market adjusted its expectations for future monetary policy from the Federal Reserve, putting pressure on risk assets.
CoinGlass data shows that consecutive two-day pullbacks have led to nearly $1 billion in liquidated crypto leveraged derivative positions, primarily from bullish positions betting on price increases.
Macroeconomics and policy expectations dominate market sentiment
The recent pullback in Bitcoin's price reflects a correction of the market's earlier optimistic expectations for Bitcoin. The previous optimism was mainly based on two assumptions: first, that the Federal Reserve would adopt a more accommodative monetary policy, meaning aggressive rate cuts; and second, that if Trump were to be re-elected as U.S. President, it would likely bring a clearer regulatory framework for the cryptocurrency industry. However, the current economic data and the Federal Reserve's statements have led the market to doubt the realization of these two assumptions.
Philipp Pieper, co-founder of Swarm Markets, pointed out that in the absence of new market narratives, the cryptocurrency market is gradually returning to the logic of traditional financial markets. When interest rates are low, investors typically tend to increase their allocation to risk assets (such as cryptocurrencies and tech stocks) in search of higher returns. However, currently, due to the uncertainty surrounding Trump's administration's cryptocurrency policy, market sentiment is relatively cautious, and this uncertainty is expected to persist for some time.
10x Research's analysis report also emphasizes the importance of macroeconomic data on Bitcoin's price. The report suggests that the Federal Reserve's response to U.S. economic data and the global liquidity situation are two key macro factors influencing Bitcoin's price movements. In the short term, Bitcoin's price may enter a highly volatile 'banana zone.' The 'banana zone' vividly describes the tumultuous price movements of assets under the influence of macro factors.
BitMEX founder Arthur Hayes also analyzed the impact of dollar liquidity on Bitcoin's price in his latest blog post, stating that Bitcoin and cryptocurrency prices typically rise when dollar liquidity increases.
In the past 30 days, institutions have cumulatively increased their holdings by over 34,000 Bitcoins
Despite the short-term adjustment pressure in the market, analysts remain optimistic about Bitcoin's long-term prospects. CryptoQuant's on-chain data indicates that the market's 'potential demand remains very strong.' The institution measures market demand by comparing the number of idle Bitcoins with the new Bitcoin supply from miners; when the decrease in idle Bitcoins far exceeds the new supply, it indicates strong market demand.
CryptoQuant analysts stated that around December 21, 2024, institutional investors sold approximately 79,000 Bitcoins within a week, leading to a 15% pullback in the market. However, large institutions subsequently utilized the market consolidation period to continuously buy below $95,000 using a time-weighted average price (TWAP) strategy. Over the past 30 days, institutional investors have cumulatively increased their holdings by over 34,000 Bitcoins, providing buying support for Bitcoin's recent rebound.
Despite the adjustment period within institutional portfolios, the trend of on-chain Bitcoin accumulation has remained evident since June 2023. This indicates that, while retail demand is at a five-year low, institutional investors' interest in Bitcoin remains high.
CryptoQuant analysis also indicates that the pullback in Bitcoin has significantly reduced unrealized profits for traders, which is normal after a substantial rise. Currently, traders' realized price is about $88,000 (which usually serves as price support during bull markets).
Historical data shows that in the January following the last two U.S. presidential elections, Bitcoin experienced pullbacks, dropping 36% in both January 2017 and January 2021.
Real Vision Chief Crypto Analyst Jamie Coutts commented on platform X: "With the strengthening of the dollar becoming a real issue, I originally expected Bitcoin to be around $80,000 by now, but it hasn't dropped to that level, which indicates strong potential buying interest and market expectations that the Federal Reserve will have to take action; otherwise, the situation will start to worsen. Regardless of how events unfold, more liquidity is on the way, and Bitcoin should be much higher in 6 months."
Overall, the recent pullback in Bitcoin is mainly influenced by macroeconomic data and changes in expectations regarding Federal Reserve policies. In the short term, the market may still maintain a volatile pattern. However, the continued accumulation behavior of institutional investors and the strong demand reflected in on-chain data will provide support for the long-term trend.
