Interest rate cuts slow down, will the crypto market enter winter again?

Author: 1912212.eth, Foresight News

On December 17 last year, the crypto market as a whole showed a downward trend since Powell’s hawkish speech. On Tuesday, officially released data showed that U.S. employment data was better than expected and service industry inflation accelerated. The two data quickly cooled the market's expectations for an interest rate cut by the Federal Reserve. The market generally expects that there may even be only one interest rate cut this year. Affected by this, Bitcoin fell again from above $100,000 to a minimum of $92,500, and Ethereum fell from a minimum of $3,700 to $3,208.

Altcoins were generally dragged down and fell sharply. The two-day decline of some altcoins from January 7th to 8th wiped out all the gains since the beginning of January 1st. Among the 24-hour declines, in the DeFi sector, USUAL oversold by 11%, ENA oversold by 6%, PENDLE oversold by 9%, meme sectors WIF and PEOPLE both fell by more than 8%, and public chain second-layer sectors APT, TIA, ADA, etc. Both were around 5%, with MOVE falling by more than 9%. In the AI ​​sector, VIRTUAL fell more than 6%. WLD and ARKM fell around 5%.

Contract data shows that in the past 24 hours, positions were liquidated at US$556 million, long positions were liquidated at US$418 million, and the largest single liquidation was US$15.299 million.

Bitcoin spot ETF data has achieved three consecutive days of net inflows since January 3, and even achieved a single-day total net inflow of over US$900 million on January 3 and January 6. Ethereum spot ETF data has been mediocre. Since the beginning of this month, there have been net outflows on January 2 and January 7, while net inflows have been achieved on January 3 and January 6. The net inflow this month is slightly higher than the net outflow. However, according to Trader T data, on January 8, the net outflow of U.S. Bitcoin spot ETFs reached US$569 million, and the net outflow of Ethereum spot was US$159 million. The two data undoubtedly made the already illiquid market worse.

In terms of stablecoin data, after January 1, the market value of USDT continued to decrease, then began to rebound, and has now temporarily risen to around US$137.5 billion.

USDC data performed brilliantly, rising from US$43.95 billion to a maximum of approximately US$46 billion, with net inflows exceeding US$2 billion. USDC is mostly American users, which may represent that American financial power is still buying.

Market currency prices continue to fall. What’s the reason?

Silk Road’s $6.5 billion worth of Bitcoin approved for sale

On the morning of January 9, an official confirmed to DB News today that the U.S. Department of Justice has been allowed to liquidate 69,370 BTC (worth approximately $6.5 billion) seized in the Silk Road case. The Justice Department requested permission to sell the assets, citing Bitcoin price fluctuations. When asked about next steps, a spokesperson for the Ministry of Justice said: "The government will take next steps based on the judgment in this case."

Affected by this news, Bitcoin briefly fell by 1%, but it soon rebounded to the $94,000 mark.

At present, the U.S. Department of Justice has not determined when it will be sold. In addition, there are only 11 days left before Trump officially takes office. Trump has previously stated that he will not sell any Bitcoin after taking office.

According to the latest data from Arkham, the U.S. government address currently holds 198,109 Bitcoins, worth approximately $18.59 billion; and holds 54,753 Ethereum, worth approximately $181.3 million.

Fed rate cut expectations drop sharply

On the evening of January 8, the U.S. ADP employment number in December was recorded at 122,000, which was lower than market expectations of 140,000 and the lowest level since August 2024. The number of people filing for unemployment benefits in the United States in the week to January 4th was 201,000, the lowest since the week of February 17, 2024. These two data once again showed that the US market economy is strong and expectations of interest rate cuts have further declined.

In the minutes of the Federal Reserve meeting in the early morning of January 9, committee members predicted that the pace of interest rate cuts in 2025 would slow down significantly, with only 75 basis points of interest rate cuts expected throughout the year. Market futures prices indicate that policy easing in 2025 may be slightly lower than expected. Still, market participants still have considerable uncertainty about the path of the federal funds rate over the next year.

When discussing inflation developments, participants noted that although inflation has slowed significantly from its peak in 2022, it is still on the high side. Participants commented that overall inflation has slowed in 2024, with some recent monthly price readings coming in higher than expected. Still, most said progress in inflation remained evident across a broad range of core goods and services prices.

Federal Reserve Governor Waller said on Wednesday that although inflation will stagnate above the 2% target at the end of 2024, based on market expectations and short-term inflation data, the U.S. inflation situation continues to improve. He expects inflation to continue to decline in 2025, supporting further interest rate cuts. Waller emphasized that the fundamentals of the U.S. economy remain solid and the job market shows no obvious signs of weakening. Fed officials have widely divided opinions on the number of interest rate cuts in 2025, ranging from zero to five. He believes that although the slow progress of inflation has triggered calls for slowing or suspending interest rate cuts, medium-term inflation will continue to move towards the 2% target and further interest rate reduction policies will be appropriate.

According to CME Fed Watch data: the probability of the Fed keeping interest rates unchanged in January is 95.2%, and the probability of cutting interest rates by 25 basis points is 4.8%. The probability of keeping current interest rates unchanged by March is 60.9%, the probability of a cumulative 25 basis point interest rate cut is 37.3%, and the probability of a cumulative 50 basis point interest rate cut is 1.7%.

In the crypto market, as the probability of the Federal Reserve cutting interest rates has become smaller, market liquidity injection has slowed down, and market price increases have been weak. The consumer price index inflation data to be released on January 15 may once again cause considerable fluctuations in the crypto market.

future trend

Bitcoin’s correlation with the S&P 500 has climbed back to 0.88, indicating a renewed synchrony between the two markets and marking a previous divergence between the two (Bitcoin is up 47% since Trump’s election, while The S&P 500 rose just 4%) has shifted.

Andre Dragosch, Bitwise’s head of European research, attributed the re-emerging correlation to macroeconomic factors, including the Federal Reserve’s revised rate cut forecasts and a stronger U.S. dollar, which continue to weigh on crypto and traditional markets. While Bitcoin has strong on-chain support, its movements are increasingly influenced by broader market trends, suggesting there may be short-term risks ahead.

Matrixport chart reports that fluctuations in global liquidity may put certain pressure on Bitcoin, and historical data shows that liquidity changes usually lead Bitcoin price trends by about 13 weeks. As the U.S. dollar strengthens following Trump's re-election, global liquidity in U.S. dollars has begun to tighten, suggesting that Bitcoin may enter a consolidation phase in the near future.

However, this consolidation is expected to be temporary. Overall, risk assets (especially Bitcoin) still show positive long-term potential. Nonetheless, traders should exercise an increased degree of caution in weaker liquidity environments, as these indicators have historically proven to be reliable market indicators.

Cauê Oliveira, director of research at Blocktrends, said today that Bitcoin prices fell after hitting a record high in late 2024, when institutional investors sold a large amount of Bitcoin, but now they are starting to buy Bitcoin again at prices below $100,000.

The data shows that wallets holding 1,000 to 10,000 BTC sold 79,000 BTC in the week after December 21, but after Bitcoin’s recent correction, this group returned to hoarding when the price was below $95,000.