Due to rising US Treasury yields and investors adjusting their expectations for the Fed's monetary policy, the US dollar index (DXY) reached a new high, and the cryptocurrency market corrected for the second consecutive day.
CMC data shows that in the past 24 hours, BTC once 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 last 24 hours, while Ethereum dropped to around $3,330.
This trend is closely related to the strong economic data released by the United States, including a surge in job vacancies and better-than-expected manufacturing performance. These data further reinforce Fed 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 the minutes of the Federal Reserve's meeting released today further indicate 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 Fed's future monetary policy, putting pressure on risk assets.
CoinGlass data shows that the consecutive two-day pullback led to the liquidation of nearly $1 billion in crypto leveraged derivative positions, mainly long positions betting on price increases.
Macroeconomic conditions and policy expectations dominate market sentiment.
The recent correction in Bitcoin prices reflects the market's adjustment of the 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 win the presidency again, it could bring a clearer regulatory framework for the cryptocurrency industry.
However, the current economic data and the Federal Reserve's statements have raised doubts in the market about the realization of the above two assumptions.
Philipp Pieper, co-founder of Swarm Markets, pointed out that without new market narratives driving it, 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) to seek 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 believes that the Federal Reserve's response to US economic data and the global liquidity situation are two key macro factors affecting Bitcoin price trends. In the short term, Bitcoin prices may therefore enter a volatile "banana zone." The "banana zone" vividly describes the turbulent trends in asset prices under the influence of macro factors.
BitMEX founder Arthur Hayes analyzed the impact of US dollar liquidity on Bitcoin prices in his latest blog post. He believes that Bitcoin and cryptocurrency prices generally rise when US dollar liquidity increases.
Over the past 30 days, institutions have accumulated over 34,000 Bitcoins.
Although the market faces adjustment pressure in the short term, analysts remain optimistic about Bitcoin's long-term prospects. On-chain data from CryptoQuant shows that market demand for Bitcoin is still very strong. The agency measures market demand by comparing the number of idle Bitcoins with the new Bitcoin supply from miners. When the reduction in idle Bitcoins far exceeds the new supply, it indicates strong market demand.
CryptoQuant analysts stated that around December 21, 2024, institutional investors sold approximately 79,000 Bitcoins in one 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 over 34,000 Bitcoins, providing buying support for Bitcoin's recent rebound.
Although there are adjustment periods in institutional portfolios, the trend of on-chain Bitcoin accumulation has remained evident since June 2023. This indicates that, at a time when retail demand is at a five-year low, institutional investors' interest in Bitcoin remains high.
CryptoQuant's analysis also shows that the Bitcoin correction has significantly reduced the unrealized profits of traders, which is normal after a sharp rise. Currently, the realized price for traders is about $88,000 (which usually serves as price support during bull markets).
Historical data shows that in January following the last two US 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, saying: "As the strengthening of the dollar becomes a real issue, I originally expected Bitcoin to be around $80,000 now, but it hasn't dropped to that level. This reflects strong potential buying interest and the market's expectation that the Fed will have to take action; otherwise, the situation will start to deteriorate. Regardless of how events unfold, more liquidity is about to come, and Bitcoin should be much higher in six months."
Overall, the recent correction in Bitcoin is mainly influenced by changes in macroeconomic data and expectations regarding Federal Reserve policy. In the short term, the market may still maintain a volatile pattern. However, the continuous accumulation by institutional investors and the strong demand reflected in on-chain data will support the long-term trend.