Written by: BitpushNews
Due to rising U.S. Treasury yields and investors adjusting expectations for the Federal Reserve's monetary policy, the U.S. dollar index (DXY) hit new highs, and the cryptocurrency market corrected for the second consecutive day.
CMC data shows that over the past 24 hours, BTC briefly fell to an intraday low of $92,600, and as of the time of writing, it has rebounded to around $94,400, still down 2.1% in the past 24 hours, while Ethereum dropped to around $3,330.
This trend is closely related to the strong economic data released by the U.S., including a surge in job vacancies and better-than-expected manufacturing performance. This data further reinforces Federal Reserve Chairman Powell's view that aggressive rate cuts may not be necessary this year to effectively control inflation. 'Fed mouthpiece' Nick Timiraos pointed out that today's release of the Federal Reserve meeting minutes further indicates that officials are generally willing to keep rates unchanged at the upcoming meeting at the end of this month. As a result, the market adjusted its expectations for the Federal Reserve's future monetary policy, putting pressure on risk assets.
CoinGlass data shows that the two-day pullback resulted in nearly $1 billion in crypto leveraged derivative positions being liquidated, mainly from long positions betting on price increases.
Macroeconomic factors and policy expectations dominate market sentiment.
This pullback in Bitcoin's price reflects a correction of the market's previous optimistic expectations for Bitcoin. The earlier optimism was primarily based on two assumptions: first, that the Federal Reserve would adopt a more accommodative monetary policy, namely aggressive rate cuts; and second, that if Trump were to be re-elected as President of the United States, it could bring a clearer regulatory framework for the cryptocurrency industry. However, current economic data and the Federal Reserve's statements have raised doubts about the realization of these two assumptions.
Philipp Pieper, co-founder of Swarm Markets, pointed out that in the absence of new market narratives to drive momentum, the cryptocurrency market is gradually returning to the logic of traditional financial markets. When interest rates are low, investors typically tend to increase their allocation to risk assets (such as cryptocurrencies and tech stocks) in search of higher returns. However, currently, due to the unclear cryptocurrency policy of the Trump administration, market sentiment is relatively cautious, and this uncertainty is expected to persist for some time.
The analysis report from 10x Research also emphasizes the importance of macroeconomic data on Bitcoin prices. The report argues that the Federal Reserve's response to U.S. economic data and global liquidity conditions are two key macro factors influencing Bitcoin price trends. In the short term, Bitcoin's price may enter a volatile 'banana zone.' The 'banana zone' vividly describes the turbulent price movements of assets under the joint influence of macro factors.
BitMEX founder Arthur Hayes also analyzed the impact of U.S. dollar liquidity on Bitcoin prices in his latest blog post, believing that Bitcoin and cryptocurrency prices typically rise when dollar liquidity increases.
Over the past 30 days, institutions have accumulated more than 34,000 Bitcoins.
Despite the short-term adjustment pressure in the market, analysts remain optimistic about the long-term prospects of Bitcoin. CryptoQuant's on-chain data shows that the market's 'potential demand for Bitcoin remains very strong.' The organization measures market demand by comparing the amount of idle Bitcoin with the new supply of Bitcoin from miners. A reduction in idle Bitcoin that far exceeds new supply indicates strong market demand.
CryptoQuant analysts wrote that around December 21, 2024, institutional investors sold approximately 79,000 Bitcoins within a week, leading to a 15% market correction. However, large institutions subsequently took advantage of the market consolidation period, continuously buying below $95,000 using a time-weighted average price (TWAP) strategy. Over the past 30 days, institutional investors have accumulated more than 34,000 Bitcoins, providing buying support for Bitcoin's recent rebound.
Despite the adjustment period in institutional portfolios, the trend of on-chain Bitcoin accumulation has remained evident since June 2023. This indicates that while retail demand is at a five-year low, institutional investors' interest in Bitcoin remains high.
CryptoQuant's analysis also shows that the Bitcoin pullback has significantly reduced unrealized profits for traders, which is a normal phenomenon after a sharp increase. Currently, traders' realized price is about $88,000 (usually forming price support during a bull market).
Historical data shows that in January following the last two U.S. presidential elections, Bitcoin experienced corrections, dropping 36% in both January 2017 and January 2021.
Jamie Coutts, Chief Crypto Analyst at Real Vision, commented on the X platform: 'As the strengthening dollar becomes a real issue, I originally expected Bitcoin to be around $80,000 now, but it hasn't dropped to that extent, indicating strong potential buying interest and market expectations that the Federal Reserve will have to take action; otherwise, the situation will start to deteriorate. Regardless of how events unfold, more liquidity is coming, and Bitcoin should be much higher in six months.'
In summary, the recent pullback in Bitcoin is mainly influenced by changes in macroeconomic data and expectations regarding Federal Reserve policy. In the short term, the market may continue to maintain a volatile pattern. However, the ongoing accumulation behavior of institutional investors and the strong demand reflected in on-chain data will provide support for the long-term trend.
