⛔️⛔️⛔️WARNING: Market Trends and Volatility
Stop for a moment, read on to make the best decisions.
1. Market Overview:
The cryptocurrency market has seen a sharp decline over the past two days, especially in altcoins and meme coins, which had been on a strong rally earlier. This correction can be explained by macro factors, upcoming political events, and shifting investor sentiment.
2. Main Causes of the Decline:
a. Concerns About Macroeconomics:
• Impact from Inflation Data:
• Inflation continues to be a major concern in the financial markets, with NASDAQ and S&P 500 down 1% last week.
• Inflationary pressures raise concerns that the US Federal Reserve (FED) will keep interest rates high, which is not favorable for risk assets like cryptocurrency.
• FED Interest Rate Expectations:
• According to CME Group's FedWatch Tool, there is a 95% chance that the FED will keep interest rates at 4.25%–4.5% in the meeting on January 29.
• High interest rates reduce liquidity, making risk assets like cryptocurrency less attractive to investors.
b. Perpetual Contract Funding Rate:
• Earlier this week, the perpetual contract funding rate of $BTC and $ETH increased due to optimism surrounding Donald Trump's upcoming inauguration. However, this optimism has diminished due to macroeconomic concerns, leading to liquidations of long positions.
c. Correlation to the Stock Market:
• Cryptocurrency continues to maintain a high correlation with the stock market, particularly the NASDAQ technology index. As macroeconomic concerns affect traditional markets, the cryptocurrency market is similarly pressured.
d. Behavior of Altcoins and Meme Coins:
• Altcoins and meme coins experienced a price surge based on market sentiment, but are currently undergoing significant corrections. This is a common feature in speculative markets where short-term sentiment leads to large price fluctuations.
• High leverage usage in altcoins has caused liquidations, increasing downward pressure.
3. Impact from Political Events:
Trump's Inauguration (January 20):
• Trump's inauguration is expected to cause significant volatility in the cryptocurrency market:
• Appointments like Scott Bessent as Secretary of the Treasury and Elon Musk as advisor indicate that the new administration will have a friendly attitude towards cryptocurrency.
• This raises expectations for significant policy changes favorable to the market.
• Historical Precedents:
• During the previous term, on January 20, when Trump took office, the cryptocurrency market reached an all-time high (ATH). Investors are anticipating similar volatility this year.
4. Important Economic Events:
a. CPI Data (January 15):
• Consumer Price Index (CPI) data will provide important insights into inflation trends.
• If CPI is higher than expected, this will reinforce expectations for high interest rates, putting downward pressure on the cryptocurrency market.
b. FOMC Minutes:
• Investors will be watching the FOMC meeting minutes for clues about future monetary policy.
• A 'hawkish' tone may add more downward pressure, while a 'dovish' tone may help the market recover.
c. Non-Farm Payroll (NFP) Data:
• Labor market data will indicate whether the FED has room to slow down tightening policy.
• If the employment data is strong, this will reinforce the case for keeping interest rates high, which is unfavorable for cryptocurrency.
5. Technical Analysis of Bitcoin ($90K Zone):
a. Support and Resistance Levels:
• Support:
• Bitcoin is testing a key support level near $90,770. If this level breaks, it could trigger large long position liquidations and further price declines.
• Resistance:
• The main resistance level remains at $108,268. To continue the upward trend, Bitcoin needs to break through this level.
b. Futures Market:
• Many leveraged long positions are concentrated around the $90K region. If the price of Bitcoin drops below this area, it could lead to significant liquidations, creating stronger downward pressure.
c. Volatility Outlook:
• Increased volatility is expected around Trump's inauguration (January 20). Investors should prepare for significant price swings in both directions.
6. Strategies and Recommendations:
a. Short Term (next 2 weeks):
• Caution with Volatility:
• Increased price volatility is expected ahead of major economic events (CPI, FOMC). Avoid using high leverage, especially in altcoins.
• Focus on Bitcoin and Ethereum:
• BTC and ETH maintain relative stability compared to speculative altcoins. Accumulating around support levels may be a safer strategy.
b. Medium Term (the rest of January):
• Monitor Inflation and FED Policies:
• If the CPI data on January 15 is lower than expected, this could help improve risk sentiment and the market could recover.
• However, if the FED maintains a 'hawkish' stance, the market will continue to face downward pressure.
• Monitor Political Events:
• Trump's cryptocurrency-friendly administration could create long-term bullish sentiment. Announcements regarding regulations or policies related to crypto could drive bullish trends.
c. Long Term (2025 and beyond):
• Prepare for the Next Bull Cycle:
• Despite short-term risks, cryptocurrency adoption and blockchain technology remain a promising long-term story.
• Clarity on regulations from a friendly administration could lay the groundwork for the next bullish market.
7. Conclusion:
The cryptocurrency market is currently affected by a combination of macroeconomic concerns, leveraged positions, and political instability. Investors should prepare for significant volatility in the coming weeks, especially around key events such as CPI data, FOMC minutes, and Trump's inauguration. Although short-term risks are high, the long-term outlook for cryptocurrency remains positive due to increasing adoption and the potential for clearer regulatory adjustments.
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