The price of Bitcoin (BTC) fell below $97,000 on Wednesday as economic data from the United States raised concerns about inflation. This data follows reports of solid job openings and a surge in activity in the services sector, further raising concerns that the Federal Reserve will slow its efforts to ease monetary policy.
Bitcoin fell 6% as Treasury yields soared.
The number of jobs in the United States unexpectedly increased in November, indicating that the economy remains strong. On the other hand, input prices in the services sector reached a two-year high in December, a sign that activity in the services sector accelerated last month. These factors signal an economy that makes it a bit more challenging for the Federal Reserve to cut interest rates in the near future.
The increase in economic activity has caused the yield on the benchmark 10-year Treasury bond to soar to its highest level since April 26, at 4.699 percent. All of that yield increase has led investors to change their outlook, with many shifting to safer assets like bonds. This means that Bitcoin and other cryptocurrencies are less attractive to investors.
Bitcoin is trading 6% lower at $95,539 after reaching around $101,000 on Tuesday. Ethereum also saw a sharp decline, down 9.51% to $3,327. Solana dropped 9% to $194.02, and the price of XRP fell 3% to $2.33.
The decline of Bitcoin and other cryptocurrencies has led to $555 million in long positions in the derivatives market being liquidated. Sellers were forced to buy back their positions in a leveraged move. This is the first major liquidation event of 2023.
Market volatility is also increasing, as CoinGlass data shows that these long positions have been liquidated. According to Ryan Lee, a senior analyst at Bitget Research, such events often lead to rapid price fluctuations. However, he notes that traders may reduce leverage to prevent further liquidations, which could open the door to a consolidation phase.
The cryptocurrency market is preparing for the Federal Reserve's decision.
Market volatility will continue to depend on interactions with macroeconomic data and trends in the cryptocurrency market. In the coming weeks, investors will be monitoring the Federal Reserve's actions and any fluctuations in economic indicators. Meanwhile, the market is likely to react to a significant event, such as the Federal Reserve's interest rate decision on January 29.
Additionally, market participants will be watching Donald Trump's inauguration on January 20 for subsequent volatility. However, the future direction of the cryptocurrency market remains uncertain as it reacts to changing economic signals. But for now, both market momentum and broader economic trends lead to uncertainty and increased risks for traders.
Increasing caution among investors is driving down the price of Bitcoin and other cryptocurrencies. With a strong economic outlook, many believe interest rates will remain unchanged at this time. Investors may continue to shift away from riskier assets like Bitcoin and Ethereum and prefer more stable returns in traditional markets.
The volatility of the cryptocurrency market will highlight how these markets are becoming intertwined with the broader economy. As these variables continue to drive market behavior, investors will need to navigate uncertainties regarding inflation, interest rates, and sentiment once again.
