Cryptocurrency prices fell sharply on Tuesday, erasing some of Monday's gains as concerns in the bond market intensified.
Bitcoin (BTC) fell by 4%, reaching a low of $97,700 during the day. Similarly, Ethereum (ETH), Ripple (XRP), and Solana (SOL) experienced declines of over 5%.
The decline aligns with risk-averse sentiment, which extends to other financial markets, particularly the stock market. The Nasdaq 100 index dropped more than 1% to $19,635, while the S&P 500 index declined by 0.50%. These indices are primarily dominated by tech companies, which are often more sensitive to risk sentiment.
Popular tech stocks were also affected. Nvidia's stock plummeted by 5.4%, erasing more than $175 billion in market value. Tesla's stock fell by 3%, while AMD dropped by 1.5%.
The sell-off may be driven by the upcoming release of important economic data (including non-farm payroll data and the Federal Reserve meeting minutes) and rising U.S. Treasury yields. The 10-year Treasury yield rose by 1.7% to 4.70%, while the 30-year and 5-year yields climbed to 4.61% and 4.50%, respectively.
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Rising bond yields typically indicate that people expect the Federal Reserve to adopt a more hawkish stance. In the December meeting, the Federal Reserve hinted at two rate hikes in 2025, fewer than previously anticipated. The minutes from this meeting will be released on Wednesday, January 8, revealing further details of the Federal Reserve's discussions.
The Labor Department's report shows that job vacancies surged to a six-month high driven by the service sector, putting additional pressure on Bitcoin and other cryptocurrencies.
The report is set to be released ahead of the official non-farm payroll data, which is expected on Friday. A stronger-than-expected employment report could reinforce the Federal Reserve's hawkish stance, as a tightening labor market would sustain inflationary pressures.
Some analysts believe that soaring bond yields could lead to a crash in Bitcoin, altcoins, and other assets. Moody's Chief Economist Mark Zandi warned in a recent memo that rising deficits under Donald Trump could drive up yields. This would result in a shift of funds from risk assets like cryptocurrencies to money market funds.