Original | Odaily

Author | Fu Ruhe

In the past week, the crypto market has continued to decline. Yesterday, after the news that the U.S. Department of Justice was granted permission to sell the $6.5 billion in Bitcoins seized from the Dark Web Silk Road, Bitcoin dropped from $94,000 to below $92,000, exacerbating the market's panic sentiment. Several Federal Reserve officials have also indicated that they will adjust their interest rate policy, hinting that the pace of rate cuts will slow down in 2025 and implement a tightening policy. At the same time, under the influence of the Los Angeles wildfires, some analysts pointed out that many wealthy people have sold their crypto assets to rebuild their lives after the disaster. The various market performances have made investors concerned about the future crypto market outlook.

Today, Russia has also started selling the 1,032 Bitcoins seized in the Infraud hacker group case. Under the influence of multiple factors, the crypto market has declined again today.

• OKX real-time data shows that as of the time of writing, BTC has fallen below $92,000, currently trading at $93,760, a 24-hour drop of 0.45%;
• In addition to BTC, Altcoins led by ETH are also facing significant declines, with ETH falling below $3,200, currently trading at $3,258, a 24-hour drop of 1.94%; SOL has also fallen below $190, currently trading at $189.57, a 24-hour drop of 1.4%;
• The on-chain market is also unable to escape this difficulty, with the previously hot AI Agent sector collectively experiencing a major correction. According to GMGN data, AI Agent tokens have continued to decline across the board, with a24-hour drop of 23.05% for a16z, currently valued at $1.68 billion; FARTCOIN has a 24-hour drop of 31.09%, currently valued at $919 million; ZEREBRO has a 24-hour drop of 41.92%, currently valued at $329 million.

Affected by the overall market downturn, the total crypto market capitalization has also plummeted rapidly. CoinGecko data shows that the current total crypto market cap has fallen to $3.4 trillion, a 24-hour drop of 3.4%. Crypto user trading enthusiasm has also declined, with the Alternative Fear & Greed Index reporting 50 today, shifting from Greed to Neutral.

In the derivatives trading sector, Coinglass data shows that $375 million in positions were liquidated across the network in the past 24 hours, including $260 million in long positions and $115 million in short positions. In terms of cryptocurrencies, BTC had $99.74 million in liquidations and ETH had $69.66 million.

Below, Odaily analyzes the reasons for the recent market decline and the future trend.

Multiple factors leading to the market decline

Rebuilding after the Los Angeles wildfires, crypto assets become the fastest way to cash out

Recently, the ravages of the Los Angeles wildfires not only caused huge property losses to local residents, but also had a significant impact on the crypto currency market. According to Coinbase data, after the fire broke out, the Bitcoin trading volume from Los Angeles and surrounding areas surged, especially the large transactions, reflecting the urgent need for some affected families to cash out their crypto assets to meet the funding needs for post-disaster reconstruction.

According to a local real estate market analyst, many affluent families hold Bitcoins, Ethers and other cryptocurrencies, which are usually seen as an important part of their investment portfolios. However, under the devastation of the wildfires, they had to quickly cash out these assets.

The head of a blockchain research institute in Los Angeles also pointed out that the recent price fluctuations in the market may be related to this large-scale asset sell-off. Especially in the context of tech circles and high-net-worth individuals generally holding a higher proportion of crypto assets, the surge in short-term funding needs after the disaster has exacerbated the selling pressure in the market. In addition, analysts warn that short-term selling behavior may have a negative impact on the stability of the crypto currency market.

The U.S. Department of Justice is granted permission to sell the $6.5 billion in Dark Web Silk Road Bitcoins seized

The U.S. Department of Justice has been granted permission to handle the 69,370 Bitcoins related to the infamous "Silk Road" case, currently valued at about $6.5 billion. This news has triggered market volatility, with some investors concerned that the sale of these Bitcoins may conflict with former President Trump's proposed "Bitcoin reserve" plan. However, Trader T on X platform stated that "it may take several months from 'being granted permission' to 'actual sale', and the court has already planned to liquidate 30,000 BTC in 2023."

At the same time, BitMEX co-founder Arthur Hayes said on X platform that the "diamond hands" in the market are ready to buy the dips at this time. CryptoQuant CEO Ki Young Ju also pointed out that about $379 billion entered the market last year, equivalent to about $10 billion per day, so the $6.5 billion in Bitcoins sold by the U.S. government may be absorbed by the market in just one week, and investors don't need to worry too much. El Salvador President Nayib Bukele jokingly said that perhaps we all have a chance to buy Bitcoins at a discounted price.

Coindesk analyst James Van Straten believes that the market's concerns about the sell-off may be exaggerated. If these 69,370 Bitcoins are really sold, they may be sold in an orderly manner to obtain the best possible price. And the market has already anticipated this scenario, so it may have already digested this potential risk.

The Federal Reserve's pace of rate cuts to slow down in 2025

Recently, the Federal Reserve's monetary policy has changed, mainly reflected in the slower pace of rate cuts. Boston Fed President Collins stated that given the current strong employment data and persistent inflationary pressures, she believes the pace of rate cuts in 2025 will be less than previously expected by the market. Specifically, Collins supports the Fed cutting rates twice in 2025, rather than the previous expectation of four times, reflecting the Fed's cautious attitude towards the economic situation.

The Federal Reserve is facing the challenge of strong economic growth and inflation above 2% in the current economic environment. Kansas City Fed President George pointed out that the current economic conditions are close to achieving the dual goals of price stability and full employment, and he believes the policy should remain neutral, with interest rates close to the long-term level. George emphasized that policy adjustments will only be made if there are significant changes in the data.

In addition, Fed Governor Bowman mentioned in a recent speech that she supports the rate cut decision last month, and believes it is the "last step" in the Fed's monetary policy adjustment. She pointed out that inflation risks still exist, so future monetary policy decisions will remain cautious.

The challenge facing the Federal Reserve is that while the current economic performance is strong, it is still difficult to stabilize the inflation rate at the 2% target level. George expects the Fed may not achieve this goal until 2026.

From the market's expectations, according to the CME "Fed Watch" data, investors generally believe that the probability of the Fed maintaining the current interest rate in January 2025 is 93.1%. While the probability of rate cuts has increased somewhat in the coming months, the market's expectations for the Fed's policy remain relatively cautious.

Overall, the Federal Reserve's monetary policy has been adjusted, with the pace of rate cuts slowing down, reflecting the Fed's cautious assessment of the current economic situation. Although future rate cuts may still continue, the market expects this process to be slower and more cautious.

The crypto market outlook may become clearer in 10 days

Over the next 10 days, the cryptocurrency market may reach a critical turning point. Although the market sentiment remains gloomy and investor confidence is slightly weak, multiple signs indicate that the crypto market is expected to see a rebound in 2025. According to Reuters, industry insiders revealed that the cryptocurrency industry is actively lobbying the U.S. government, requesting that the Trump administration issue an executive order within the first 100 days of its term to establish a U.S. Bitcoin reserve. This initiative aims to ensure that the crypto industry can access banking services and plans to set up a dedicated cryptocurrency advisory committee. Sources expect this order to be issued as early as January 20, 2025. This action may provide new policy support for the crypto industry and become a catalyst for market recovery.

On the other hand, the fundamentals of the crypto market remain strong. Data from IntoTheBlock shows that despite the overall market downturn, the net outflow trend of centralized exchanges (CEXs) is still ongoing. The data shows that more and more investors choose to hold their assets for the long term, rather than panic-selling due to short-term price fluctuations. This phenomenon indicates that there is still strong confidence in the market, and investors remain optimistic about the growth potential of crypto assets. These behaviors reflect investors' positive attitude towards the long-term development of cryptocurrencies, and they expect the market to recover after a short-term adjustment.

Furthermore, the regulatory environment for Altcoins is expected to improve in 2025. CoinDesk's Managing Director Andrew Baehr pointed out that in 2025, Altcoins will benefit from changes in the cryptocurrency regulatory environment, particularly as the SEC is likely to ease regulatory pressure on Altcoins, providing a more relaxed policy environment for the launch of more crypto projects. The improvement in regulation will help attract more projects to enter the market and may further promote the healthy development of the market.

Finally, the trend of the integration of AI and cryptocurrencies will become more apparent. With the participation of Web2 giants, the underlying technology of AI in the crypto field will be further strengthened. Members of industry-leading companies such as Coinbase, Google, and a16z have jointly launched the "Aiccelerate" project, a decentralized autonomous organization (DAO) aimed at accelerating the deep integration of cryptocurrencies and artificial intelligence technology. AI technology is expected to play an increasingly important role in the development of blockchain projects, transaction execution, risk management, and other areas, bringing more innovation and transformation to the crypto industry.

In summary, although the current market environment is challenging, with the gradual implementation of policy support, the recovery of investor confidence, and the drive of AI technology, the cryptocurrency market in 2025 is expected to gradually recover and may reach a new development peak.