The cryptocurrency market experienced a downturn on the second-to-last day of the year, with XRP leading the losses. A stronger dollar exerted downward pressure on global currencies and assets, including Bitcoin, while Asian equity markets also slid lower on Monday.
XRP plummeted more than 5% in the past 24 hours, accompanied by declines in other major cryptocurrencies. Dogecoin (DOGE), Solana’s SOL, Ether (ETH), and BNB each fell as much as 2%. The overall cryptocurrency market capitalization decreased by 3%, and the CoinDesk 20 (CD20), a broad-based index tracking the largest tokens excluding stablecoins, shed 3.5%.
US equities declined on Friday as investors reduced their positions amidst year-end uncertainty. An Asia Pacific index reversed its five-day gains, and futures contracts for the U.S. S&P 500 and Nasdaq indexes indicated potential losses in the U.S. session as of Asian afternoon hours. Historically, Bitcoin (BTC) has exhibited an inverse correlation with the U.S. Dollar Index (DXY), which measures the greenback’s exchange rate against major fiat currencies, including the euro.
The dollar’s recent strength is largely attributed to anticipation of President-elect Donald Trump taking office in late January. Trump has pledged various policies aimed at bolstering the economy in the coming years. A strong dollar increases the attractiveness of dollar-denominated assets compared to cryptocurrencies, leading investors to favor traditional investments like U.S. Treasuries or stocks that offer returns in a strong dollar environment.
This has dampened expectations of a sustained crypto rally, particularly with lower liquidity and year-end profit-taking among investors. The anticipated “Santa rally,” a term for the bullish seasonality typically observed in December, has failed to materialize, with BTC prices declining nearly 4% this month. However, BTC remains up 47% in the final quarter.
Furthermore, scaled-back expectations for continued interest rate cuts by the Federal Reserve have contributed to the decline in Bitcoin and cryptocurrency prices over the past month.
Despite these challenges, some remain optimistic about the long-term impact of crypto policies on the market. Maksym Sakharov, co-founder of WeFi, believes that Bitcoin and altcoins have not yet reached their peak prices despite the ongoing consolidation driven by the recent interest rate cut. He attributes the sell-offs to market reactions to uncertainties surrounding macroeconomic policies.
Sakharov suggests that the Federal Reserve’s preparation for higher figures next year, despite inflation nearing the 2% annual benchmark, could alter monetary policy and impact the market. However, he anticipates that President-elect Trump’s upcoming inauguration may lead to increased corporate involvement in the Bitcoin ecosystem as regulations become more favorable. If these projections materialize, Bitcoin’s price could potentially decouple from macroeconomic factors that typically contribute to its volatility. This long-term optimism offers a counterpoint to the current market downturn.
