Cryptocurrency continues to crash!
In the past two days, the cryptocurrency market has plummeted significantly, with Bitcoin 'jumping down' from its historical high of $108,000, falling below $100,000 on Thursday, and dropping below $93,000 again on Friday night. Cryptocurrencies like Ethereum, BNB, Solana, Dogecoin, and Cardano also followed suit.
The new round of crashing in cryptocurrencies has also led to many liquidations. Coinglass data shows that in the past 24 hours, more than 420,000 people in the crypto market were liquidated, with a total liquidation amount reaching $1.4 billion, of which over 80% were long liquidations.
Analysts pointed out that Bitcoin's crash is related both to profit-taking and to the decline in expectations for Fed rate cuts and Powell's latest remarks on Bitcoin. Powell recently stated that the Fed does not allow holding any Bitcoin and will not participate in government reserves of Bitcoin.
Today, in the Hong Kong stock market, cryptocurrency concept stocks also collectively adjusted. By the end of the trading session, OSL Group and Blueport Interactive were down over 5%, while Xun'an Technology fell nearly 6%. In the U.S. pre-market, cryptocurrency concept stocks also collectively declined, with Bit Digital down over 7%, MicroStrategy down over 5%, and Coinbase down over 4%.
Bitcoin plummets
Since entering December, cryptocurrencies led by Bitcoin have seen increased volatility; on December 18, Bitcoin first broke through $108,000, reaching a new historic high; on December 19, Bitcoin entered a high-point plummet mode, dropping below $100,000 during the day; on December 20, Bitcoin continued to plunge, falling below $93,000 during the day. This means that within three days, from the peak to the low, Bitcoin's maximum retracement exceeded 13%.
As of around 9:00 PM Beijing time on the 20th, Bitcoin fluctuated around $94,000, down nearly 8% in 24 hours. Additionally, Ethereum fell over 12%, Dogecoin dropped over 20%, Cardano declined over 14%, and Solana fell over 11%. Coinglass data shows that in the past 24 hours, nearly 428,000 people in the crypto market were liquidated, with a total liquidation amount reaching $1.4 billion, including $1.2 billion in long liquidations and $200 million in short liquidations.
This round of Bitcoin's crash is related to the latest actions of the Federal Reserve. This week, the Fed again lowered the target range for the federal funds rate by 25 basis points, but Chairman Powell stated that more progress needs to be made in controlling inflation before further easing of monetary policy. The Fed also released its latest 'dot plot' on Wednesday, showing that policymakers expect only two rate cuts of 25 basis points each by the end of 2025, which is half of the reduction they expected in September for next year.
Due to the Federal Reserve's cautious stance on subsequent rate cuts, most risk assets are under pressure, with Bitcoin's price falling below $100,000 on Thursday, dragging down the performance of speculative assets. Since Trump, who supports cryptocurrencies, won the U.S. presidential election on November 5, Bitcoin has still increased by nearly 50%. Strahinja Savic, head of data and analysis at FRNT Financial, stated that seeing such adjustments in a crypto bull market is 'very typical.' Edward Chin from Parataxis also noted that this looks like year-end profit-taking.
Tony Sycamore, a market analyst at IG Australia Pty, pointed out in a report that investors focused on 'recent U.S. inflation and economic activity data' should not be surprised by the results of the Fed meeting. 'However, this meeting has become a catalyst for correcting speculative overheating. Since the U.S. elections, risk assets including stocks and Bitcoin have attracted a large influx of speculative funds.'
According to an analysis by Jake Werrett, legal counsel at the crypto trading platform dYdX, global economic indicators (such as interest rates) are closely related to the volatility of the crypto market, so a reduction in interest rate expectations can have a significant impact on the market. Werrett explained, 'Many investors view Bitcoin as a reserve currency, and lower interest rates typically mean more cash circulation, higher inflation, and increased investment incentives for value-storing assets like Bitcoin.'
Sean McNulty, trading director at liquidity provider Arbelos Markets, stated that after the Fed meeting, market hedging demand for Bitcoin's decline has increased. Zann Kwan, chief investment officer at Revo Digital Family Office, predicted that Bitcoin may fall back to just above $90,000 in the short term.
Scared by Powell?
The latest comments from Federal Reserve Chairman Powell are also one of the main reasons for the significant drop in cryptocurrencies like Bitcoin.
On Thursday, Federal Reserve Chairman Powell stated at a press conference after the monetary policy meeting that the Fed has no intention of participating in any government plan to hoard large amounts of Bitcoin. Powell said, 'We are not allowed to hold Bitcoin, and such issues need to be considered by Congress; the Fed is not currently seeking any related legal changes.'
Powell's comments weakened the value of Bitcoin, which has surged significantly along with other crypto assets since Trump's victory in the election on November 5, doubling its price to over $100,000 this year.
Analysts pointed out that although Trump promised to implement 'policies favorable to the digital asset industry' and has planned to create new White House positions related to cryptocurrencies and nominate Bitcoin supporters, there are both opportunities and numerous real-world obstacles for policy implementation.
Trump previously proposed the establishment of a 'strategic Bitcoin reserve' in the U.S., but has yet to provide specific details. Barclays analysts noted in a recent report that establishing a strategic Bitcoin reserve may require congressional approval and the issuance of new government bonds. Considering possible implementation methods, we suspect this plan will face strong opposition from the Federal Reserve.
Due to the current expectation of a smaller rate cut by the Fed in 2025, some investors may choose to reduce risk exposure and take profits. 'Technically, caution is needed in the short term,' wrote Chris Weston, head of research at Pepperstone Group, in a report. 'This does not mean we will see a price crash soon, but momentum has clearly disappeared from this move, and buyers have lost control over the 'tape.'