In the past couple of days, the cryptocurrency market has been truly nerve-wracking, with prices dropping one moment and bouncing the next. Many people are asking, "What is going on?" In fact, it boils down to three main reasons creating chaos, and there isn't any significant problem with the market's fundamentals itself. Let's discuss these three reasons in detail.
First, Powell's "Cold Water"
First, we have to talk about Federal Reserve Chairman Powell. His recent remarks were like a bucket of cold water thrown on the market. He stated that the Federal Reserve would not participate in any government plans to hoard cryptocurrencies, and as soon as he said this, the market panicked. Everyone was originally hoping that the Federal Reserve would ease regulations, but after his comments, investors felt disheartened. Seeing an opportunity, short sellers began to increase their positions and sell off, naturally causing prices to drop.
Second, Hopes for Rate Cuts Dashed
Next, let's talk about expectations for interest rate cuts from the Federal Reserve. Originally, everyone was counting on rate cuts next year to give the market a breather, as 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 happen so quickly; investors see that liquidity might not be as loose, and their enthusiasm immediately wanes. Funds begin to flow out, and the cryptocurrency market naturally cannot withstand the pressure of sell-offs.
Third, Year-End "Capital Retrieval"
Finally, year-end is generally a time when everyone is looking to "wrap things up." Institutional investors and large holders typically stash away their profits to reduce risk. Additionally, with trading volume low at the end of the year, any slight market fluctuation can easily trigger larger price movements when big funds exit. This behavior of "taking profits" has a more significant impact in the highly volatile cryptocurrency market.
