Macroeconomic liquidity is increasingly impacting the crypto market.
Written by: 1912212.eth, Foresight News
On December 17 last year, the crypto market had been declining following Powell's hawkish remarks. Fast forward to this Tuesday, official data showed that U.S. employment data was better than expected, with service sector inflation accelerating, causing market expectations for a Federal Reserve rate cut to quickly cool down, with widespread anticipation that there may only be one rate cut this year. As a result, Bitcoin fell from above $100,000 to a low of $92,500, while Ethereum dropped from $3,700 to a low of $3,208.
Altcoins have generally fallen significantly, with some altcoins erasing all gains since January 1 during the drop from January 7 to 8. In the 24-hour decline, the DeFi sector saw USUAL drop by 11%, ENA by 6%, PENDLE by 9%, and meme coins WIF and PEOPLE each fell by over 8%. Layer 2 public chains like APT, TIA, and ADA fell by around 5%, while MOVE dropped over 9%. In the AI sector, VIRTUAL fell by over 6%. WLD and ARKM fell by around 5%.
Contract data shows that $556 million was liquidated in the past 24 hours, with long positions liquidated for $418 million, and the largest single liquidation amounting to $15.299 million.
Bitcoin spot ETF data has recorded three consecutive days of net inflow since January 3, with net inflows exceeding $900 million on January 3 and January 6. Ethereum spot ETF data has shown mixed performance, with net outflows on January 2 and January 7, while net inflows were recorded on January 3 and January 6, with this month's net inflow slightly higher than net outflow. However, according to Trader T data, on January 8, the U.S. Bitcoin spot ETF had a net outflow of $569 million, and Ethereum had a net outflow of $159 million, further exacerbating the already liquidity-constrained market.
Regarding stablecoin data, after January 1, the market capitalization of USDT has been continuously decreasing, then began to rise, currently hovering around $137.5 billion.
USDC data, on the other hand, performed well, rising from $43.95 billion to a peak of about $46 billion, with net inflows exceeding $2 billion. USDC is primarily held by U.S. users, indicating that American capital strength is still buying.
Why are market coin prices continuously declining?
Bitcoin worth $6.5 billion from Silk Road has been authorized for sale.
On the morning of January 9, an official confirmed to DB News that the U.S. Department of Justice has been authorized to liquidate 69,370 BTC (valued at approximately $6.5 billion) seized in the Silk Road case. The DOJ requested permission to sell these assets due to fluctuations in Bitcoin prices. When asked about the next steps, a DOJ spokesperson stated: "The government will proceed based on the ruling of this case."
As a result of this news, Bitcoin briefly fell over 1%, but quickly rebounded back to the $94,000 mark.
Currently, the U.S. Department of Justice has not determined when to sell, and there are only 11 days left until Trump's official inauguration, during which he previously stated he would not sell any Bitcoin after taking office.
According to Arkham's latest data, U.S. government addresses currently hold 198,109 BTC, valued at approximately $18.59 billion; and hold 54,753 Ethereum, valued at approximately $181.3 million.
Federal Reserve rate cut expectations have significantly decreased.
On the evening of January 8, the U.S. ADP employment figures for December recorded 122,000, falling short of market expectations of 140,000, marking the lowest level since August 2024. The number of initial unemployment claims for the week ending January 4 was recorded at 201,000, the lowest since the week of February 17, 2024. These two data points again indicate that the U.S. market economy remains strong, with further declines in rate cut expectations.
In the early hours of January 9, the Federal Reserve's meeting minutes indicated that committee members expect a significant slowdown in interest rate cuts in 2025, anticipating only a 75 basis point cut for the entire year. Market futures prices, however, suggest that the extent of policy easing in 2025 may be slightly lower than this expectation. Nevertheless, market participants still hold considerable uncertainty regarding the path of the federal funds rate over the coming year.
During discussions on inflation developments, participants noted that while inflation has significantly slowed from its peak in 2022, it remains elevated. Participants commented that overall inflation rates slowed in 2024, with some recent monthly price readings exceeding expectations. Nonetheless, most indicated that progress on inflation remains evident in the broad range of core goods and services prices.
Federal Reserve Governor Waller stated on Wednesday that although inflation is stagnating above the 2% target at the end of 2024, based on market expectations and short-term inflation data, the U.S. inflation situation continues to improve. He predicts that inflation will continue to decline in 2025, supporting further rate cuts. Waller emphasized that the fundamental economic conditions in the U.S. remain robust, with no significant signs of weakness in the labor market. There is considerable divergence among Federal Reserve officials regarding the number of rate cuts in 2025, ranging from zero to five. He believes that although slow progress on inflation has raised calls for slowing or pausing rate cuts, mid-term inflation will continue to move toward the 2% target, making further rate cut policies appropriate.
According to CME FedWatch data: The probability of the Federal Reserve maintaining interest rates in January is 95.2%, while the probability of a 25 basis point cut is 4.8%. The probability of maintaining current rates unchanged in March is 60.9%, with a cumulative probability of cutting rates by 25 basis points at 37.3% and 50 basis points at 1.7%.
As the probability of Federal Reserve rate cuts diminishes, market liquidity injections are slowing, leading to weak price increases. The consumer price index inflation data, set to be released on January 15, may again cause significant fluctuations in the crypto market.
Future Trends
The correlation between Bitcoin and the S&P 500 index has rebounded to 0.88, indicating a synchronization between the two markets again, marking a shift from the previous divergence trend (since Trump's election, Bitcoin has risen by 47%, while the S&P 500 index has only increased by 4%).
Andre Dragosch, Head of Research at Bitwise Europe, attributes the re-emerging correlation to macroeconomic factors, including the Federal Reserve's revised rate cut forecasts and a stronger dollar, which continue to pressure both cryptocurrencies and traditional markets. Despite Bitcoin having strong on-chain support, its movement is increasingly influenced by broader market trends, indicating potential short-term risks in the future.
Matrixport's chart report indicates that fluctuations in global liquidity may put some pressure on Bitcoin, with historical data showing that liquidity changes typically lead Bitcoin price movements by about 13 weeks. As the dollar strengthens following Trump's re-election, global liquidity measured in dollars begins to tighten, suggesting that Bitcoin may soon enter a consolidation phase.
However, this consolidation is expected to be only a temporary phenomenon. Overall, risk assets (especially Bitcoin) still show positive long-term potential. Nevertheless, in a weak liquidity environment, traders should remain more cautious, as these indicators have historically proven to be reliable market barometers.
Cauê Oliveira, Head of Research at Blocktrends, stated today that after Bitcoin prices hit a historical high at the end of 2024, they fell when institutional investors sold a large amount of Bitcoin, but now they are starting to buy Bitcoin again at prices below $100,000.
Data shows that in the week following December 21, wallets holding 1,000 to 10,000 BTC sold off 79,000 BTC, but after a recent pullback in Bitcoin, this group began accumulating again when Bitcoin's price was below $95,000.
