The cryptocurrency market experienced a significant sell-off as the initial euphoria surrounding President-elect Donald Trump’s pro-crypto stance began to wane. Bitcoin dipped below $95,000 on Tuesday, while an index tracking smaller digital assets plummeted by as much as 15%, marking one of its most substantial intraday declines of 2024.
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This recent downturn follows a period of intense speculation in the crypto market following the US election on November 5th. Trump’s campaign promises of a favorable regulatory environment and his controversial endorsement of a national Bitcoin reserve fueled a surge in investor enthusiasm. However, the inherent volatility of digital assets makes them susceptible to rapid price swings and sudden investor exits.
Bitcoin’s Struggle to Maintain Momentum
Bitcoin reached an all-time high of $103,800 on December 5th but has since struggled to maintain its position above the $100,000 mark. The broader cryptocurrency market has shed approximately $200 billion in market capitalization within the past 24 hours, according to data from CoinGecko. This significant drop indicates a potential shift in market sentiment.
Sean Farrell, head of digital-asset strategy at Fundstrat Global Advisors LLC, suggests this recent trading activity points to “deleveraging across the crypto ecosystem.” He notes that one contributing factor could be investor caution in anticipation of Wednesday’s US inflation data, which may influence expectations for Federal Reserve interest-rate cuts. Data from Coinglass reveals that roughly $1.6 billion in bullish crypto positions using derivatives were liquidated in the last 24 hours, signaling the unwinding of leveraged bets.
Trump’s Crypto Agenda and Market Impact
Trump’s appointment of a digital-asset advocate to lead the US securities regulator and the designation of the first-ever White House czar for artificial intelligence and crypto have significantly impacted the market. Trump’s initial skepticism towards cryptocurrencies eventually transformed into support, influenced by the industry’s substantial investment in promoting its interests during the election campaign.
Proponents of digital assets anticipate a period of significant growth as the president-elect dismantles regulations implemented by the Biden administration. Conversely, critics warn that broader mainstream adoption of cryptocurrencies introduces a range of potential risks.
Since Trump’s election, approximately $10 billion has flowed into US spot-Bitcoin exchange-traded funds (ETFs). Furthermore, MicroStrategy Inc., a prominent Bitcoin accumulator, announced on Monday the acquisition of an additional $2.1 billion worth of the token.
Farrell suggests that traders might interpret MicroStrategy’s announcements of past purchases as “implicitly pulling a pretty significant spot bid from the market.” As of Tuesday morning in London, Bitcoin was trading at $96,615. Smaller cryptocurrencies like Ether and Dogecoin, a favorite among meme-stock enthusiasts, faced challenges gaining momentum.
Market Outlook and Analyst Recommendations
Technical analyst Katie Stockton of Fairlead Strategies LLC advises a “neutral short-term bias” following Bitcoin’s inability to hold above $100,000. This cautious outlook reflects the uncertainty surrounding the market’s future direction.
The recent sell-off serves as a reminder of the volatility inherent in the cryptocurrency market. While President-elect Trump’s pro-crypto stance initially ignited optimism and fueled a speculative rally, the market’s current correction underscores the importance of prudent risk management and a long-term investment perspective.
