Original author: 1912212.eth
Reprinted: Lawrence, Mars Finance
On December 17 last year, the crypto market entered a downward trend following Powell's hawkish remarks. Fast forward to this Tuesday, official data showed that U.S. employment data was better than expected, and service sector inflation accelerated, causing market expectations for Federal Reserve interest rate cuts to quickly cool, with the market generally expecting only one rate cut this year. As a result, Bitcoin fell again from above $100,000 to a low of $92,500, while Ethereum dropped from $3,700 to a low of $3,208.
Altcoins were generally dragged down significantly, with some altcoins erasing all gains since the beginning of January from January 7 to 8. In the 24-hour decline, the DeFi sector saw USUAL down 11%, ENA down 6%, PENDLE down 9%. In the meme sector, WIF and PEOPLE both saw declines exceeding 8%, while the second-layer blockchain sector with APT, TIA, ADA, etc., saw declines around 5%. MOVE dropped over 9%. In the AI sector, VIRTUAL saw a decline of over 6%. WLD and ARKM fell by around 5%.
Contract data shows that in the past 24 hours, $556 million was liquidated, with $418 million in long positions liquidated, and the largest single liquidation was $15.299 million.
Bitcoin spot ETF data has seen a continuous net inflow for three days since January 3, with total net inflows exceeding $900 million on January 3 and January 6. Ethereum spot ETF data, on the other hand, has performed moderately, with net outflows on January 2 and January 7, while net inflows were recorded on January 3 and January 6, leading to a slight net inflow for the month. However, data from Trader T shows that on January 8, the U.S. Bitcoin spot ETF saw a net outflow of $569 million, while Ethereum had a net outflow of $159 million, further exacerbating the already illiquid market.
In terms of stablecoin data, after January 1, the market capitalization of USDT has been steadily decreasing, then began to recover, currently temporarily rising to around $137.5 billion.
USDC data has performed brightly, rising from $43.95 billion to a peak of about $46 billion, with a net inflow exceeding $2 billion. USDC is primarily held by U.S. users, indicating that U.S. capital strength is still buying.
Why is the market price continuously declining?
The sale of $6.5 billion worth of Bitcoin from Silk Road has been authorized.
On the morning of January 9, an official confirmed to DB News that the U.S. Department of Justice has been authorized to liquidate 69,370 BTC (worth about $6.5 billion) seized in the Silk Road case. The DOJ requested permission to sell these assets due to Bitcoin price volatility. When asked about the next steps, a DOJ spokesperson stated, "The government will take further action based on the ruling in this case."
As a result of this news, Bitcoin briefly dropped over 1%, but quickly rebounded to the $94,000 mark.
Currently, the U.S. Department of Justice has not determined when to sell, and there are only 11 days left until Trump's official inauguration. Trump had previously stated that he would not sell any Bitcoin after taking office.
According to the latest data from Arkham, U.S. government addresses currently hold 198,109 Bitcoin, worth about $18.59 billion; and 54,753 Ethereum, worth about $181.3 million.
The expectation of interest rate cuts by the Federal Reserve has significantly decreased.
On the evening of January 8, the U.S. ADP employment figure for December recorded 122,000, below the market expectation of 140,000, the lowest level since August 2024. The number of initial jobless claims in the week ending January 4 recorded 201,000, the lowest since the week of February 17, 2024. These two pieces of data again indicate the strength of the U.S. market economy, further reducing expectations for interest rate cuts.
In the early hours of January 9, the minutes of the Federal Reserve meeting indicated that committee members expect the pace of interest rate cuts in 2025 to significantly slow down, predicting only a reduction of 75 basis points for the entire year. Market futures prices suggest that the level of policy easing in 2025 may be slightly lower than this expectation. Nevertheless, market participants still hold considerable uncertainty about the path of the federal funds rate over the next year.
During a discussion on inflation developments, attendees noted that while inflation has significantly slowed from its peak in 2022, it remains relatively high. Attendees commented that in 2024, the overall inflation rate has slowed, with some recent monthly price readings exceeding expectations. Nevertheless, most indicated that inflation progress remains evident across a wide range of core goods and services prices.
Federal Reserve Governor Waller stated on Wednesday that although inflation at the end of 2024 is stagnant above the 2% target, based on market expectations and short-term inflation data, the inflation situation in the U.S. continues to improve. He expects inflation to continue to decline in 2025, supporting further interest rate cuts. Waller emphasized that the U.S. economic fundamentals remain robust, and the job market shows no obvious signs of weakening. There is significant disagreement among Federal Reserve officials regarding the number of interest rate cuts in 2025, ranging from zero to five. He believes that, despite calls for a slowdown or pause in rate cuts due to slow inflation progress, mid-term inflation will continue to move toward the 2% target, making further interest rate cuts appropriate.
According to CME FedWatch data: the probability of the Federal Reserve maintaining interest rates in January is 95.2%, while the probability of a 25 basis point cut is 4.8%. By March, the probability of keeping the current rate unchanged is 60.9%, with a cumulative probability of a 25 basis point cut at 37.3% and a cumulative probability of a 50 basis point cut at 1.7%.
As the probability of interest rate cuts by the Federal Reserve decreases, market liquidity injections have slowed, and market prices are struggling to rise. The consumer price index inflation data, which will be released on January 15, may again cause significant fluctuations in the crypto market.
Future trends
The correlation between Bitcoin and the S&P 500 index has risen to 0.88, indicating that the two markets are once again in sync and marking a shift from the previous divergence trend (since Trump's election, Bitcoin has risen by 47%, while the S&P 500 index has only increased by 4%).
Andre Dragosch, head of research at Bitwise Europe, attributed the re-emerging correlation to macroeconomic factors, including the revised interest rate cut predictions from the Federal Reserve and the strengthening dollar, which continue to exert pressure on cryptocurrencies and traditional markets. Despite Bitcoin having strong on-chain support, its price movements are increasingly influenced by broader market trends, suggesting potential short-term risks ahead.
Matrixport's chart report indicates that fluctuations in global liquidity may put some pressure on Bitcoin, as historical data shows that changes in liquidity typically lead Bitcoin price movements by about 13 weeks. Following Trump's re-election and the strengthening of the dollar, global liquidity measured in dollars began to tighten, suggesting that Bitcoin may enter a consolidation phase in the near term.
However, this consolidation is expected to be a temporary phenomenon. Overall, risk assets (especially Bitcoin) still show positive long-term potential. Nevertheless, in a weak liquidity environment, traders should remain more cautious, as these indicators have historically proven to be reliable market barometers.
Cauê Oliveira, head of research at Blocktrends, stated today that Bitcoin's price dropped after hitting an all-time high at the end of 2024, when institutional investors sold off large amounts of Bitcoin, but now they are starting to buy Bitcoin again at prices below $100,000.
Data shows that in the week following December 21, wallets holding 1,000 to 10,000 BTC sold off 79,000 BTC, but after Bitcoin recently retraced, this group began accumulating again when the Bitcoin price fell below $95,000.
