The cryptocurrency market experienced significant selling pressure last week, primarily due to two factors: the 'California wildfires' and 'strong U.S. employment data', both of which have driven up cash demand and raised concerns about an overheating economy.

The economic losses from the wildfires in Los Angeles, USA, are estimated to be between $135 billion and $150 billion, mainly including insured and uninsured losses of real estate and automobiles, which is a significant increase from the previous estimate of $52 billion to $57 billion. The disaster primarily involved strong winds fueling the destruction of over 10,000 buildings, many of which were residential. As the fire approaches high-priced areas such as Santa Monica and Malibu, the winds are still intensifying, which may lead to further losses.

What does this have to do with the cryptocurrency market?

Although this appears to be a natural event at first glance, it will affect the short to medium-term trends of the cryptocurrency market. The area in California is traditionally a residential area favored by Hollywood stars, directors, wealthy individuals, and many entrepreneurs. They also hold substantial amounts of stocks and cryptocurrency assets. After this bull market, most wealthy investors in the U.S. have purchased some cryptocurrencies or related funds.

Unfortunately, this round of wildfires has destroyed the assets of these individuals, such as their homes and vehicles. Subsequently, they will need a large amount of cash for rebuilding their houses and purchasing vehicles. Due to high liquidity, stocks and cryptocurrencies will be their preferred options for cashing out. They will also need to wait for insurance claims to come through before having enough cash. This wildfire event will bring short to medium-term selling pressure to the cryptocurrency market.

Inflationary pressures reignited

In addition to possibly selling assets to meet the large demand for reconstruction, these additional new demands may also ignite new inflationary pressures. Reconstruction will require a large amount of raw materials, including cement, steel, wood, and other construction materials. The value of newly built real estate will also be renewed, driving up local property prices and rents, which is expected to raise inflationary pressures. However, investors cannot avoid selling off, as post-disaster reconstruction is unavoidable.

Additionally, the U.S. job growth for December released last week also exceeded expectations. According to the data from the U.S. Labor Department, 256,000 jobs were added last month, far exceeding economists' predictions of 155,000, while the unemployment rate fell to 4.1%, close to historical lows, indicating that a strong labor market may prompt the Fed to delay further interest rate cuts in 2025. The U.S. economy remains robust in its early stages, alleviating concerns about an economic recession triggered by high interest rates.

In response to the recent rise in inflation and policy uncertainty, the pace of interest rate cuts may slow down in the future. Although interest rates have been cut by four basis points to 1 percentage point by the end of 2024, the benchmark interest rate remains high at 4.25%-4.5%. Additionally, Trump proposed imposing tariffs of 60%-100% on Chinese goods and 10%-20% on imported goods, which would raise prices for American consumers and further exacerbate inflationary pressures. Now everyone is fearing the resurgence of inflation.

Considering the above two points, the cryptocurrency market will face selling pressure in the short to medium term, mainly due to cash demands from the reconstruction after the California wildfires. Given that cryptocurrency has become a relatively common investment asset among wealthy individuals in the U.S., this event will undoubtedly trigger short to medium-term selling, making it more difficult for the market to rise. A stronger selling period may occur when they reassess reconstruction after the disaster, at which point they will sell Bitcoin for cash. For now, it is merely an expectation, and it is recommended to adopt a more conservative strategy in the near term.

This week's CPI data in the U.S. is the last important data before the presidential transition, similar to the employment numbers released by the Labor Department. Biden is likely to hand in a satisfactory report to demonstrate 'success' during his administration. From this perspective, the CPI data should be below expectations or in line with expectations, so it should not impact the market. Of course, if the data is disappointing, then the previous logic will not hold.

On January 20, when Trump takes office, there will still be a lot of higher-priority issues to handle, making it difficult to expect a rapid positive impact on the cryptocurrency market. If the anticipated positive impact does not materialize, the market may experience volatility, increasing the likelihood of a downward adjustment.

In summary, before Trump takes office, the market is unlikely to experience significant declines. On the contrary, if he does not immediately provide reassurance to the cryptocurrency market, the funds that are bullish at high levels may panic, likely causing the market to adjust in late January. The situation is dynamic, but the key points in the last two weeks are the performance of the CPI data and the situation regarding cryptocurrency after Trump's inauguration.