The impact of macro liquidity on the crypto market is becoming increasingly significant.
Since Powell's hawkish remarks on December 17, the crypto market has been on a downward trend. Fast forward to this Tuesday, the official data showed that U.S. employment figures were better than expected, and service sector inflation accelerated, causing the market's expectations for Fed rate cuts to rapidly cool, with general expectations that there may only be one rate cut this year. As a result, Bitcoin fell again from above $100,000 to a low of $92,500, while Ethereum dropped from $3,700 to a low of $3,208.
Altcoins have been broadly dragged down, with some altcoins erasing all gains since January 1, experiencing significant declines from January 7 to 8. Over a 24-hour period, the DeFi sector saw USUAL drop by 11%, ENA by 6%, PENDLE by 9%, and meme coins WIF and PEOPLE both dropped over 8%. Layer 2 public chains like APT, TIA, and ADA saw declines around 5%, with MOVE dropping over 9%. In the AI sector, VIRTUAL dropped over 6%. WLD and ARKM saw declines around 5%.
Contract data shows that in the past 24 hours, liquidations totaled $556 million, with long positions liquidated amounting to $418 million, and the largest single liquidation was $15.299 million.
Since January 3, Bitcoin spot ETF data has recorded a net inflow for three consecutive days, with total net inflows exceeding $900 million on January 3 and January 6. Ethereum spot ETF data has been lackluster, showing net outflows on January 2 and January 7, while achieving net inflows on January 3 and January 6, with this month's net inflows slightly exceeding net outflows. However, data from Trader T shows that on January 8, the net outflow from U.S. Bitcoin spot ETFs reached $569 million, while Ethereum spot saw a net outflow of $159 million, further exacerbating the already liquidity-constrained market.
In terms of stablecoin data, since January 1, USDT's market capitalization has been continuously decreasing, then began to recover, currently temporarily rising to around $13.75 billion.
USDC data has performed well, rising from $43.95 billion to a peak of about $46 billion, with a net inflow exceeding $2 billion. USDC is predominantly held by U.S. users, which may indicate that the strength of U.S. capital is still buying.
Why are market prices continually declining?
The $6.5 billion worth of Bitcoin from Silk Road has been approved for sale.
On the morning of January 9, an official confirmed to DB News that the U.S. Department of Justice has been authorized to liquidate 69,370 BTC (valued at approximately $6.5 billion) seized in the Silk Road case. The DOJ requested permission to sell these assets due to Bitcoin price fluctuations. When asked about the next steps, a DOJ spokesperson stated, 'The government will act based on the judgment in this case.'
As a result of this news, Bitcoin briefly dropped over 1%, but soon rebounded back to the $94,000 mark.
Currently, the U.S. Department of Justice has not determined when to sell, and there are only 11 days left until Trump officially takes office. Trump previously stated that he would not sell any Bitcoin after taking office.
According to the latest data from Arkham, U.S. government addresses currently hold 198,109 Bitcoins, valued at approximately $18.59 billion; they also hold 54,753 Ethereum, valued at approximately $181.3 million.
The expectations for Fed rate cuts have significantly decreased.
On the evening of January 8, the U.S. ADP employment numbers for December recorded 122,000, falling short of market expectations of 140,000, marking the lowest level since August 2024. The number of initial jobless claims for the week ending January 4 was recorded at 201,000, the lowest since the week of February 17, 2024. These two data points further indicate the strength of the U.S. market economy, leading to a further decline in rate cut expectations.
In the early hours of January 9, the Federal Reserve's meeting minutes revealed that committee members expect a significant slowdown in rate cuts in 2025, projecting a total cut of only 75 basis points for the entire year. However, market futures prices suggest that the level of policy easing in 2025 may be slightly lower than this expectation. Despite this, market participants still harbor considerable uncertainty regarding the path of the federal funds rate over the next year.
During discussions on inflation developments, participants pointed out that although inflation has significantly slowed from its peak in 2022, it remains high. Participants commented that in 2024, the overall inflation rate has slowed, with some recent monthly price readings exceeding expectations. Nonetheless, most agreed that progress on inflation remains evident across a broad range of core goods and services prices.
Federal Reserve Governor Waller stated on Wednesday that although inflation may stagnate above the 2% target at the end of 2024, based on market expectations and short-term inflation data, the U.S. inflation situation is still improving. He expects inflation to continue to decline in 2025, supporting further rate cuts. Waller emphasized that the U.S. economic fundamentals remain strong, and the job market shows no significant signs of weakness. There is considerable divergence among Fed officials regarding the number of rate cuts in 2025, ranging from zero to five. He believes that although slow progress on inflation has led to calls for a slowdown or pause in rate cuts, mid-term inflation will continue to move towards the 2% target, making further rate cut policies appropriate.
According to CME FedWatch data: the probability of the Federal Reserve maintaining interest rates in January is 95.2%, and the probability of a 25 basis point rate cut is 4.8%. By March, the probability of maintaining the current rate is 60.9%, while the cumulative probability of a 25 basis point cut is 37.3%, and that of a 50 basis point cut is 1.7%.
As the probability of Fed rate cuts diminishes, liquidity injection into the market is slowing, and market prices are struggling to rise. The consumer price index inflation data, set to be released on January 15, may cause significant fluctuations in the crypto market.
Future trends
The correlation between Bitcoin and the S&P 500 index has risen to 0.88, indicating a synchronization between the two markets, marking a shift from the previous divergence trend (since Trump's election, Bitcoin has risen by 47%, while the S&P 500 index has only risen by 4%).
Andre Dragosch, head of European research at Bitwise, attributes the re-emerging correlation to macroeconomic factors, including the Fed's revised rate cut forecasts and the strengthening dollar, which continue to exert pressure on both the cryptocurrency and traditional markets. Despite Bitcoin having strong on-chain support, its movement is increasingly influenced by broader market trends, indicating potential short-term risks ahead.
According to a Matrixport chart report, fluctuations in global liquidity may put some pressure on Bitcoin. Historical data shows that liquidity changes typically lead Bitcoin price movements by about 13 weeks. As the dollar strengthens following Trump's re-election, global liquidity measured in dollars is beginning to tighten, suggesting that Bitcoin may enter a consolidation phase in the near future.
However, this consolidation is expected to be only a temporary phenomenon. Overall, risk assets (especially Bitcoin) still show positive long-term potential. Nevertheless, traders should exercise greater caution in a weaker liquidity environment, as these indicators have historically proven to be reliable market barometers.
Cauê Oliveira, head of research at Blocktrends, stated today that Bitcoin's price fell after reaching an all-time high at the end of 2024, when institutional investors sold off a substantial amount of Bitcoin. However, they have now begun to purchase Bitcoin again at prices below $100,000.
Data shows that in the week following December 21, wallets holding between 1,000 and 10,000 BTC sold 79,000 BTC, but after a recent Bitcoin price correction, this group began accumulating again when Bitcoin was priced below $95,000.
