Original title: (Institutions Buy Against the Trend, BTC Correction Cannot Conceal Long-term Bull Market Signals)
Original source: BitpushNews
Due to rising U.S. Treasury yields and investors adjusting their expectations for Federal Reserve monetary policy, the U.S. dollar index (DXY) has reached new highs, leading to a second consecutive day of pullback in the cryptocurrency market.
CMC data shows that in the past 24 hours, BTC briefly fell to an intraday low of $92,600, and as of the time of publication, it has rebounded to around $94,400, still down 2.1% in the past 24 hours, while Ethereum dropped to around $3,330.
This trend is closely related to the strong economic data released in the U.S., including a surge in job vacancies and manufacturing performance exceeding expectations. This data further reinforces Federal Reserve Chairman Powell's view that aggressive interest rate cuts may not be necessary this year to effectively control inflation. 'Federal Reserve Mouthpiece' Nick Timiraos pointed out that today's released minutes from the Federal Reserve meeting further indicate that officials are generally willing to maintain interest rates unchanged at the upcoming meeting at the end of this month. As a result, the market adjusted its expectations for the Federal Reserve's future monetary policy, putting pressure on risk assets.
CoinGlass data shows that two consecutive days of pullback have led to nearly $1 billion worth of leveraged cryptocurrency derivative positions being liquidated, mainly long positions betting on price increases.
Macroeconomics and policy expectations dominate market sentiment
The recent price correction of Bitcoin reflects the market's adjustment of its earlier optimistic expectations for Bitcoin. The previous optimism was primarily based on two assumptions: first, that the Federal Reserve would adopt a more accommodative monetary policy, i.e., actively lowering interest rates; second, that if Trump is re-elected as President of the United States, it is expected to bring a clearer regulatory framework for the cryptocurrency industry. However, the current economic data and the Federal Reserve's statements have caused the market to doubt the realization of these two assumptions.
Philipp Pieper, co-founder of Swarm Markets, pointed out that in the absence of new market narratives, the cryptocurrency market is gradually returning to the logic of traditional financial markets. When interest rates are low, investors tend to increase their allocation to risk assets (such as cryptocurrencies and tech stocks) in search of higher returns. However, currently, due to the unclear cryptocurrency policy of the Trump administration, market sentiment is relatively cautious, and this uncertainty is expected to persist for some time.
10x Research's analysis report also emphasized the importance of macroeconomic data on Bitcoin prices. The report states that the Federal Reserve's response to U.S. economic data and global liquidity conditions are two key macro factors affecting Bitcoin's price trends. In the short term, Bitcoin prices may thus enter a volatile 'banana zone.' The 'banana zone' vividly describes the turbulent price trends of assets under the combined influence of macro factors.
BitMEX founder Arthur Hayes also analyzed the impact of U.S. dollar liquidity on Bitcoin prices in his latest blog post, believing that Bitcoin and cryptocurrency prices typically rise when U.S. dollar liquidity increases.
In the past 30 days, institutions have cumulatively increased their holdings by more than 34,000 Bitcoins.
Although the market is facing adjustment pressure in the short term, analysts remain optimistic about Bitcoin's long-term prospects. CryptoQuant's on-chain data shows that the market's 'potential demand for Bitcoin remains very strong.' The agency measures market demand by comparing the amount of idle Bitcoin with the new Bitcoin supply from miners. When the reduction in idle Bitcoin significantly exceeds the new supply, it indicates strong market demand.
CryptoQuant analysts wrote that around December 21, 2024, institutional investors sold about 79,000 Bitcoins in one week, leading to a 15% market correction. However, large institutions then used the market consolidation period to continue buying below $95,000 using a time-weighted average price (TWAP) strategy. Over the past 30 days, institutional investors have cumulatively increased their holdings by more than 34,000 Bitcoins, providing buying support for Bitcoin's recent rebound.
Despite adjustments in institutional portfolios, the trend of on-chain Bitcoin accumulation has remained evident since June 2023. This indicates that while retail demand is at a five-year low, institutional investors' interest in Bitcoin remains high.
CryptoQuant's analysis also shows that the Bitcoin correction has significantly reduced unrealized profits for traders, which is normal after a substantial rise. Currently, the realized price for traders is about $88,000 (usually forming price support in a bull market).
Historical data shows that in the January following the last two U.S. presidential elections, Bitcoin experienced corrections, dropping 36% in both January 2017 and January 2021.
Real Vision's chief crypto analyst Jamie Coutts commented on the X platform: 'As the strengthening dollar becomes a real issue, I originally expected Bitcoin to be around $80,000 by now, but it hasn't dropped to that level, indicating strong potential buying interest and market expectations that the Federal Reserve will have to take action; otherwise, the situation will begin to worsen. Regardless of how events unfold, more liquidity is about to arrive, and Bitcoin should be much higher in six months.'
Overall, Bitcoin's recent correction is mainly influenced by macroeconomic data and changes in expectations for Federal Reserve policy. In the short term, the market may still maintain a volatile pattern. However, the continuous accumulation behavior of institutional investors and the strong demand reflected in on-chain data will provide support for the long-term trend.
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