The crypto market took a hit on Wednesday as macroeconomic concerns and inflation fears rattled investors. Bitcoin and Ether, the two largest cryptocurrencies, led the decline, with significant losses across the broader crypto landscape.
Bitcoin and Ether Lose Momentum
Bitcoin fell by 5%, slipping to $96,527 after briefly surpassing the $100,000 milestone earlier this week, according to The Block. Ether saw a sharper decline, tumbling 8.5% to $3,353. Other major cryptocurrencies such as Dogecoin and Avalanche suffered double-digit losses, contributing to a 7.48% drop in The Block’s GMCI 30 index, which tracks the performance of the top 30 cryptocurrencies.
Earlier in the week, Bitcoin and Ether surged on optimism tied to Donald Trump’s impending presidential inauguration and rising perpetual futures funding rates. However, this rally proved short-lived as broader macroeconomic issues came to the forefront.
Inflation Concerns Weigh on Markets
Min Jung, an analyst at Presto Research, highlighted that crypto’s decline mirrors broader market trends. “Both the NASDAQ and S&P 500 dropped over 1% yesterday due to concerns about inflation, following ISM data showing faster-than-expected U.S. economic growth,” Jung noted.
This data raised fears of persistent inflation, pushing bond yields higher, with the 10-year U.S. Treasury yield reaching its highest level since April. Market sentiment soured as traders began anticipating prolonged monetary tightening by the Federal Reserve.
Federal Reserve Policies Add Pressure
Comments from Federal Reserve Chair Jerome Powell in December have fueled ongoing market unease. Powell emphasised the Fed’s commitment to curbing inflation, dashing hopes for rate cuts in the near term.
Rachael Lucas, a crypto analyst at BTC Markets, pointed out that traders are bracing for higher interest rates. “The market is pricing in the likelihood that the Fed will keep rates elevated for longer. This is amplifying volatility, particularly in risk assets like cryptocurrencies,” Lucas explained.
According to CME Group’s FedWatch Tool, there is a 95.2% probability that the Fed will maintain the U.S. interest rate at 4.25% to 4.5% in its next decision on Jan. 29.
Trump’s Inauguration Fuels Speculation
Donald Trump’s upcoming inauguration on Jan. 20 is also adding to market uncertainty. With a pro-crypto majority in Congress and key appointments like Scott Bessent as Treasury Secretary and Elon Musk as an advisor, the new administration signals a potential pivot towards cryptocurrency-friendly policies.
While this has spurred some optimism among crypto enthusiasts, it has also heightened volatility as investors remain cautious about potential policy changes.
Key Events to Watch
Investors are eyeing several economic data releases this month to gauge the trajectory of inflation and monetary policy. The FOMC minutes, non-farm payroll data later this week, and the Consumer Price Index (CPI) report on Jan. 15 will be critical indicators.
As crypto market grapple with macroeconomic pressures, volatility is likely to persist. Analysts advise caution, highlighting the importance of these upcoming events in shaping the market’s next move.
