The cryptocurrency market is facing significant volatility, struggling with a sharp drop of 7.69% over the past 24 hours to a total market capitalization of $3.3 trillion as trading began in Europe. The sharp decline comes as investors shift their focus to geopolitical developments and new economic uncertainty following President-elect Donald Trump’s trade policies.
Geopolitical tensions and market sentiment
The sell-off in historic safe-haven assets, including Bitcoin (BTC) and Gold, was fueled by hopes of easing tensions between Lebanon and Israel. However, the Crypto Fear and Greed Index dropped to 79, marking a two-week low while remaining in “extreme greed” territory. Analysts attributed the drop to a broader market correction after a prolonged bull run that began in early November.
Bitcoin, an indicator for the cryptocurrency market, has experienced a sharp pullback, trading at $91,616 on Tuesday—down 6.6% over the past 24 hours. The asset has faced four consecutive days of losses, extending its decline from its recent high of $99,000. Market watchers note that BTC’s current rally near $91.8K is crucial, as a failure to hold this level could see the price drop to $87K, a key Fibonacci retracement point.
Risk of profit taking and leverage
Market corrections have intensified amid increased leverage and profit-taking. CoinGlass data shows that liquidations across the cryptocurrency market reached $689.79 million in the past day, with Bitcoin alone contributing more than $500 million. Independent analysts say the surge in leveraged positions and unrealized profits — now at 57% — has left the market vulnerable to a sudden correction.
According to MAC_D, an independent CryptoQuant analyst, Bitcoin's failure to break above the psychological $100,000 mark highlights overheating. "This correction is due to overheating leverage, as open interest and leverage ratios are estimated to be at their highest levels of the year," he explained.
Altcoin Resilience and Decline
Amid the broader market downturn, some altcoins have shown surprising resilience. Stellar Lumens (XLM) recorded a 330% surge in two weeks, peaking at $0.588 on November 25, its highest level since May 2021. Similarly, Ethereum (ETH) continues to generate interest, with traders comparing its performance to Bitcoin and XRP.
On the other hand, Solana (SOL) is struggling, marking its fourth consecutive day of losses, currently trading at $230. Other top-cap cryptocurrencies, including Dogecoin (DOGE), XRP, and Binance Coin (BNB), have also seen significant declines, reflecting a broader market correction.
Trump's trade war and its impact on the market
President-elect Donald Trump’s recent tariff announcements have added to the uncertainty in global markets. The plans include a 10% tariff on all imports from China and a 25% tariff on goods from Mexico and Canada, effective January 20. Trump cited illegal immigration and the fentanyl trade as the main justification for the measures, which prompted immediate backlash from affected trading partners.
A spokesperson for the Chinese Embassy in the United States, Liu Pengyu, criticized the tariffs, warning that a trade war would have no winners. The announcement sent stock indexes reeling and added pressure to an already fragile stock market, with potential spillover effects to cryptocurrencies.
Prospects and risks ahead
As the crypto market weathers these headwinds, analysts warn that continued pressure from geopolitical tensions and macroeconomic changes could further dampen investor sentiment. Traders are closely watching BTC’s performance around the $91.8K support level, with the potential for a broader sell-off if this level is broken.
While the prospect of a year-end rally above $100,000 now seems unlikely, market participants remain optimistic about altcoin opportunities, especially in projects with solid fundamentals. However, the risk of increased volatility and flash crashes remains ever-present in the rapidly evolving cryptocurrency landscape.
This volatile mix of geopolitical uncertainty, profit-taking, and leverage highlights the complex interplay shaping today’s cryptocurrency markets. Investors are advised to remain cautious and maintain a long-term perspective amid these turbulent conditions.
