The decline of Bitcoin from 108,000 to 100,000 is exactly the same as the trend from 98,000 to 90,000 last month. For an asset with a strong cyclicality like Bitcoin, large fluctuations are normal. As long as you can find the rationality of each rise or fall, you will be able to remain calm in the face of adversity. For me, isn’t this what I experienced last month? I also know the next plot. It’s boring!
Let's talk about last night's decline first. Although the market is in a panic and the copycats are all scared, I think it's nothing. It's just a normal correction. Let's put aside the negative events that occurred last night and just talk about what I have been talking about in the past few days. Compared with the trend of Bitcoin from 90,000 to 100,000 starting from November 21st, you will find that every time Bitcoin rises to a large number, it has to experience a large correction.
I'm not surprised by this drop, because this is exactly what we just experienced last month. Moreover, I have prepared mentally for the subsequent trend. Bitcoin started to return to an upward consolidation trend on November 27, and after a week, it officially broke through the 100,000 mark. Even if this wave of events is not completely identical, it is very similar. By next weekend, we will see Bitcoin above 110,000; if you don't believe it, you can take a screenshot now.
Then let's analyze the reasons for this drop rationally:
(1) The Federal Reserve's hawkish statements
Last night, although the Federal Reserve cut rates by 25 basis points as expected, the dot plot reduced the original expectation of 4 rate cuts next year to 2, and the 4 cuts in 2026 were also reduced to 2. This can be considered the most hawkish dot plot of the year. Powell's post-meeting comments were also full of hawkishness, emphasizing that rate cuts will slow down and expressing concerns about inflation rebound. The most shocking part was that Powell directly mentioned Bitcoin, saying, "We are not allowed to hold Bitcoin." This statement caused the market to collapse.
Of course, it wasn't just the cryptocurrency market that crashed. The Dow Jones fell for ten consecutive days, setting the longest losing streak since 1974, dropping over a thousand points. The S&P fell nearly 3%, marking the largest drop on a rate cut day since 2001, and the Nasdaq dropped over 3%. Tesla fell over 8%, etc. In summary, the previous decline in the U.S. stock market led to the crash in the cryptocurrency market, and after Powell's mention, the crypto market experienced another drop.
(2) MicroStrategy unable to purchase Bitcoin
MicroStrategy announced last night that it will suspend issuing convertible bonds to purchase Bitcoin in January, as January 2025 marks the lock-up period for MSTR stock. During this period, MicroStrategy cannot raise funds through on-market transactions (ATM) to purchase Bitcoin. There are two views on the specific duration of this lock-up period: some believe it is the entire month, while others predict it will start from January 14 for 30 days. Currently, MicroStrategy has not officially responded to this rumor.
In short, this news is definitely bearish for Bitcoin. In the recent waves of Bitcoin's rise, we have seen news about MicroStrategy replenishing its holdings. The fund flow into ETFs has also been affected by MicroStrategy's increased positions. Last night, Bitcoin ETFs only saw an inflow of $275 million, which is halved compared to the average level this week.
However, in the long run, the recent drop in Bitcoin is not a big deal!
Regarding Powell's bearish stance on Bitcoin, it's known that Trump is bullish, and now Trump's power is basically capped in the U.S. Powell could be removed with just a word. Even if he is not ousted, Arthur Hayes believes that Trump could counterbalance Powell through his nominated Treasury Secretary Scott Bessent. In short, the market's recent drop is indeed a bit impulsive, and rational thinking should clarify the differences in power dynamics.
As for MicroStrategy's pause in increasing its Bitcoin holdings in January, this is only temporary; they still need to buy in February and March. Moreover, with known funds remaining unchanged, the buying speed will increase later. Additionally, there are still $16 billion from FTX compensation entering the market in the first quarter of next year, along with various state strategic reserve plans that the Federal Reserve cannot control. The Federal Reserve is merely a money-printing institution; the Treasury is the one that spends.
Therefore, the long-term upward trend of Bitcoin remains unchanged. This recent correction is just a way to clean up leverage and prepare for more investors to enter.
