Jessy, Jinse Finance
Around 10 PM Beijing time on January 13, Bitcoin fell below $90,000. According to OKX exchange data, the lowest point was $89,111. According to Coinglass data, the total liquidation volume in the past 24 hours as of 10 AM on January 14 was $803 million, of which $581 million was long positions and $221 million was short positions. As of the time of writing, Bitcoin has rebounded and broken through $97,000.
From January 7 to January 13, the market has been mainly in a downward trend, with Bitcoin falling from $102,000 to around $89,000, a drop of about 12%. The situation is even worse for Altcoins, especially some newly launched ones, while projects like Swarm and Usual have fallen by about 2/3 from their recent highs.
At the same time as the crypto market plummeted, the US stock market also performed poorly, with the three major US stock indexes opening lower on the evening of January 13 Beijing time.
The macroeconomic data for the last month of 2024 has also been released in recent days, and January is also the last month of the Biden administration, with the power transition between the old and new governments in the US, so the financial markets are generally relatively turbulent at this time.
On January 20, Trump will take office. Will the crypto market stabilize and rise?
The less-than-expected interest rate cut by the Fed has led to a week-long decline in Bitcoin
The core factor affecting the continuous decline of the crypto market recently is the release of relevant macroeconomic data in the US in December 2024.
In terms of employment data, first, on January 7, the US November JOLTS job openings were announced at 8.098 million, higher than the expected 7.7 million, and after this news was released, Bitcoin began to fall after once again reaching $100,000.
In the following days, more related employment data was released, such as the December ADP (ADP report statistics on private sector employment) employment of 122,000, lower than the expected 140,000 and the previous value of 146,000, the lowest since August 2024. The non-farm employment in December 2024 increased by 256,000, far exceeding the expected 160,000 and higher than the 212,000 in November. The US unemployment rate in December fell slightly from 4.2% in November to 4.1%, 0.1 percentage points lower than expected. On the other hand, the growth in non-farm wages in December was slightly lower than expected, with average hourly wages rising 0.3% month-on-month, in line with expectations, and 3.9% year-on-year, slightly lower than expected.
Overall, the above employment data shows that the US employment situation is relatively improving, which also indicates that the economy is improving, reducing market expectations for the Fed to cut interest rates this year.
The December CPI data will be released in the evening of January 15. The market currently expects that the month-on-month CPI growth rate in December will remain at 0.3%, and the year-on-year growth rate will rise from the previous 2.7% to 2.9%, the highest in 5 months. The year-on-year growth of the core CPI excluding energy and food is expected to remain at 3.3%, and the month-on-month growth rate will slow to 0.2%.
If the CPI continues to rebound slightly as expected, it will make the Fed's interest rate cut policy more cautious.
The sharp drop in the crypto market on the 13th and the consecutive declines are a reaction to the current state of the US macroeconomy.
In addition, US bond yields have been rising, with the benchmark 10-year US Treasury yield closing at 4.772% last Friday, the highest since November 2023. This has also led many investors to sell off high-risk assets and turn to the relatively safe bond market.
The US dollar index has also continued to rise, reaching 110, and the strength of the US dollar is often seen as a signal of the relative strength of the US economy, and may also imply some uncertainty in the global economy. In this case, investors' risk appetite will generally decrease. At the same time, the strength of the US dollar increases the attractiveness of US dollar assets, and investors will shift funds from risky assets such as cryptocurrencies to US dollar assets in pursuit of higher returns and asset safety.
So the release of the above macroeconomic data has led the market to judge that the Fed's interest rate cuts will be less than expected, which is the fundamental cause of the market's panic sentiment, and the higher risk aversion has led people to sell crypto assets.
However, on the other hand, it is quite normal for the financial markets to experience greater volatility in the face of the transition between the old and new governments.
In January 2025, it will be the last month of the Biden administration, and in this political context, how credible will the economic data they release be?
After the sharp drop on the 13th, the market has also rebounded quickly, and as of the time of writing, Bitcoin has rebounded to above $97,000.
In the short term, the market will focus on Trump's crypto policies after taking office, and in the long run, it will still depend on macroeconomic factors
Currently, with Trump taking office, the industry generally believes that his formal inauguration will energize the crypto market, especially if he makes crypto-related remarks on the day of his inauguration, which will greatly boost market sentiment. This is because Trump has promised to make the US a global crypto capital and support the establishment of a strategic Bitcoin reserve, among other things.
According to a report in The Washington Post, David Sacks and Trump's transition team are working closely with crypto industry leaders to develop legislative strategies, and Trump is expected to sign an executive order on his first day in office, possibly involving "de-banking" and the repeal of controversial crypto accounting policies that require banks to include digital assets they hold on their own balance sheets.
As Trump's promised policies are gradually implemented, it will undoubtedly boost market confidence and lead to inflows of funds into the crypto market.
However, there are also views that if some of the promises Trump made during his previous campaign cannot be fully implemented due to practical reasons, or if he does not mention cryptocurrencies at all on the day of his inauguration, this will dampen investor confidence and lead to a short-term drop in cryptocurrency prices.
But overall, the Trump administration has always been crypto-friendly, and the policies related to virtual currencies issued during his tenure will certainly be more friendly, which is generally positive for the development of the crypto industry.
Another factor that will affect the crypto currency market is macroeconomic factors, which is also the most uncertain factor at the moment. And the economic policies introduced by Trump after taking office may also increase the uncertainty of the global economy.
During his campaign, Trump advocated bringing manufacturing back to the US, and to achieve this goal, the US dollar needs to weaken. This would relatively lower the prices of dollar-denominated commodities, thereby increasing the competitiveness of export goods and increasing export volume. The weakening of the US dollar will also increase the attractiveness of crypto assets as an alternative asset.
On the other hand, Trump is also likely to pursue protectionist trade policies, imposing tariffs on imported goods to protect domestic industries, and this trade protectionist tendency may lead to trade frictions, which will face the global economic and trade order with great uncertainty, and the unstable global political and economic situation will also be negative for cryptocurrencies.
In addition, according to the recent macroeconomic data released in the US, many institutions have lowered their forecasts for further interest rate cuts by the US in 2025, but how the real interest rate cuts in the US will be in 2025 is also highly uncertain.
First, the realization of Trump's campaign promises such as tax cuts and lower borrowing rates, as well as some trade protection measures and adjustments to immigration policies, will most likely require interest rate cuts to be achieved, but on the other hand, the introduction of Trump's policy package is actually trying to promote the development of the US economy, which will also lead to further rises in inflation, and the Fed may choose to keep interest rates unchanged or even raise them in order to control inflation.
But the Fed keeping interest rates unchanged or even raising them to control inflation is a story for later, and in the next one or two months, the more certain thing is that after Trump takes office, he will vigorously stimulate the development of the US economy, which will require an accommodative monetary policy to support it.
If Trump fulfills his promises to the crypto market when he takes office, the author is optimistic about the crypto market performance in the first month after Trump's inauguration.
