Analysis of Three Major Factors Behind the Recent Plunge in the Crypto Market

The crypto market has experienced a significant drop and intense fluctuations in the past two days, which is not due to a serious deterioration in market fundamentals, but rather a combination of multiple factors.

Powell's Speech Triggers Panic

Recent remarks by Federal Reserve Chairman Powell have caused strong turbulence in the market. He stated that the Fed has no intention of participating in the government's cryptocurrency hoarding plans, which contradicts market expectations for regulatory easing, leading to a collapse in investor sentiment and spreading panic. Short sellers seized the opportunity to increase their positions, leading to a wave of sell-offs and a rapid decline in cryptocurrency prices, resulting in market chaos.

Interest Rate Cut Expectations Falter, Market Cools Down

Previously, the market anticipated that the Federal Reserve would cut interest rates next year, which would be beneficial for cryptocurrencies and other risky assets, as low interest rates could reduce funding costs and attract capital into high-risk, high-return areas. However, Powell and the Fed sent signals that the pace of rate cuts would slow down, breaking investors' hopes. Market liquidity expectations tightened, investor enthusiasm cooled, and capital withdrew, leading to increased selling pressure in the cryptocurrency market and a continued drop in prices.

Year-End Capital Movements Disrupt the Market

At the end of the year, institutional investors and large holders enter a “year-end” mode, locking in profits to reduce risk exposure. Trading volume is already low at year-end, and when large amounts of capital exit, it creates significant price fluctuations in the highly volatile crypto market. Any slight change in capital flow is magnified, exacerbating the market decline as profit-taking behavior intensifies.

In summary, this round of decline in the crypto market is the result of multiple factors acting together, including Powell's remarks, the collapse of interest rate cut expectations, and year-end capital movements leading to a substantial drop in prices. However, it does not indicate the onset of a prolonged bear market. Although there may be fluctuations in the short term, investors should not blindly try to catch the bottom or follow the trend, but rather approach the situation calmly, avoid high-leverage trading, plan their positions reasonably, and patiently wait for the right entry opportunity.