In the past two days, the crypto market has really been nerve-wracking, with prices dropping and bouncing around. Many people are asking, 'What on earth is going on?' In fact, it boils down to three main reasons causing the disruption, and it's not that there are significant issues with the market's fundamentals. Let's talk about these three reasons.
First, Powell's 'cold water'
First, let's talk about Federal Reserve Chair Powell. His recent remarks were like a bucket of cold water thrown on the market. He said that the Federal Reserve would not participate in any government plans to hoard cryptocurrencies, and as soon as this was said, the market immediately panicked. Everyone was originally hoping that the Federal Reserve would ease regulations, but after his statement, investors' spirits fell significantly. Seeing an opportunity, short sellers began to increase their positions and sell off, causing prices to naturally drop.
Second, hopes for rate cuts falling through
Now let's talk about the Federal Reserve's interest rate cut expectations. Originally, everyone was hoping that interest rate cuts next year would give the market a breather, after all, low interest rates are good news for risk assets like cryptocurrencies. But now, Powell and the Federal Reserve's stance is that rate cuts won't come so quickly. Investors see that liquidity may not be so loose, and their enthusiasm immediately wanes. Funds start to flow out, and naturally, the cryptocurrency market can't withstand the selling pressure.
Third, year-end 'capital recovery'
Finally, year-end is also a common time for people to 'wrap up' their investments. Institutional investors and large holders tend to 'hide' their profits and reduce risks. Coupled with low trading volumes at year-end, even a slight market fluctuation can trigger larger price swings due to the exit of large funds. This 'profit-taking' behavior has a more significant impact in the highly volatile cryptocurrency market.
To sum up
Overall, this wave of decline is not caused by a single event, but is the result of multiple factors working together. Powell's cold water remarks sounded the alarm for the market; the hopes for rate cuts falling through have frustrated confidence; coupled with the year-end capital recovery, the market's liquidity has become less active, and prices naturally fell.
However, everyone shouldn't be too nervous; this doesn't mean that cryptocurrencies are set to decline completely. There may still be fluctuations in the short term, but this is also a normal market adjustment. Investors should not rush to bottom-fish or follow trends blindly. Stay calm, avoid using high leverage, manage your positions reasonably, and patiently wait for opportunities to take action.
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