10 a.m. ▪
7
min reading ▪ by
Luc Jose A.
Financial markets were shaken by a wave of tension, which caused a sharp correction in bitcoin (BTC) and the main altcoins. Within hours, the flagship crypto fell below the critical $100,000 threshold, while Ethereum (ETH) collapsed below $3,400. This decline comes against a backdrop of deterioration in global economic conditions. Several elements explain this storm on the crypto market. On the one hand, the rise in US bond yields. On the other hand, the monetary policy of the American Federal Reserve (Fed) continues to weigh heavily on market confidence. At the same time, the global economic environment remains marked by additional stress factors. Faced with these disruptions, the crypto market is going through a period of high volatility, where investor caution mixes with panic. This correction now raises the question of a possible short-term rebound or an extension of the downward trend under the effect of an uncertain macroeconomic environment.
The threat of interest rates
The recent fall in cryptos is part of a context of generalized decline in risky assets, largely influenced by the evolution of American bond rates. For several days, yields on government bonds have continued to increase, making these investments more attractive than volatile markets like crypto. The 10-year bond rate reached 4.70%, while the 5- and 30-year rates rose to 4.50% and 4.61%, respectively. This phenomenon favors a shift of capital towards investments perceived as safer, to the detriment of more speculative assets such as bitcoin and technology stocks.
At the same time, the decisions of the American Federal Reserve (Fed) are amplifying the pressure on the market. The minutes of the last meeting revealed that the rate cuts initially expected for this year 2025 could be fewer than expected. This revision dampens investor enthusiasm and weighs on the liquidity of the crypto market, which generally thrives in a more adequate monetary environment.
Added to this is the unexpected resilience of the American job market, which further complicates the situation. Indeed, with 8.1 million job openings in November, the strength of the job market suggests lasting inflationary pressure, which further reduces the likelihood of rapid monetary easing. The Fed, keen to contain inflation, could therefore maintain high rates over a prolonged period, a historically unfavorable scenario for cryptos.
Thus, all of these factors create an unfavorable environment for risky assets, where investor prudence prevails over speculation. Faced with this combination of economic and monetary pressures, the crypto market is going through a phase of increased uncertainty, marked by intensified sales and a significant increase in volatility.
A market under high tension: economic uncertainties and volatility
Beyond the decisions of the Federal Reserve, other macroeconomic factors maintain a climate of widespread distrust. Fiscal management under the Trump administration is triggering growing concerns. In addition, the increase in public deficits and the lack of a clear strategy from the US Treasury accentuate fears of an unstable financial environment. Uncertainty related to tax policy and the financing of public spending is pushing some investors to adopt a more cautious stance, and avoid risky assets like cryptos.
In this context, Arthur Hayes, former CEO of BitMEX, believes that two major events could worsen the volatility of cryptos in the coming months. According to him, the filling of the Treasury General Account (TGA) and the April tax season risk reducing dollar liquidity in the markets, which would put additional pressure on cryptos. However, if the U.S. Treasury has to replenish its reserves, it could lead to a temporary drying up of capital flows, a phenomenon that in the past has often coincided with declines in bitcoin and other cryptos.
The repercussions of these economic tensions resulted in a spectacular fall in prices. In the space of a few hours, bitcoin (BTC) lost 5.04%, falling to $96,556, while its trading volume jumped 13%, reaching $55.12 billion. This intense activity reflects a market in full turmoil, where investors react quickly to economic signals.
Ethereum (ETH) has not been spared. Its price fell by 8%, dropping to $3,370, while its trading volume increased by 21%, a sign of increased volatility. For its part, Dogecoin (DOGE) suffered a loss of 9.12%, which illustrates the extent of the decline that affected the entire crypto market.
Faced with this instability, investors are adopting opposing strategies. Some, in panic, liquidate their positions to limit their losses, while others view this drop as an opportunity to accumulate assets at a discount. Such opposition between capitulation sales and strategic purchases further accentuates market volatility.
This correction highlights the extent to which the crypto market remains sensitive to monetary decisions and macroeconomic tensions. While some observers believe that the first quarter of 2025 could see a temporary recovery thanks to an increase in liquidity, others warn that budgetary uncertainties and the Fed’s austerity could prolong this decline phase. For investors, the challenge now rests on their ability to adapt to an environment where each economic announcement can cause a reversal of the trend.
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Luc Jose A.
A graduate of Sciences Po Toulouse and holder of a blockchain consultant certification issued by Alyra, I joined the Cointribune adventure in 2019. Convinced of the potential of blockchain to transform many sectors of the economy, I took the commitment to raise awareness and inform the general public about this constantly evolving ecosystem. My goal is to enable everyone to better understand blockchain and seize the opportunities it offers. I strive every day to provide an objective analysis of current events, to decipher market trends, to relay the latest technological innovations and to put into perspective the economic and societal issues of this ongoing revolution.
