Author: BitpushNews

Due to the rise in U.S. Treasury yields and investors adjusting their expectations for the Federal Reserve's monetary policy, the U.S. dollar index (DXY) has reached a new high, and the cryptocurrency market has seen a pullback for the second consecutive day.

According to CMC data, BTC briefly fell to an intraday low of $92,600 in the past 24 hours, and as of the time of writing, it has rebounded to around $94,400, still down 2.1% in the past 24 hours, while Ethereum has dropped to around $3,330.

This trend is closely related to the strong economic data released in the U.S., including a surge in job vacancies and manufacturing performance exceeding expectations. This data further reinforces Federal Reserve Chairman Powell's view that aggressive rate cuts may not be necessary this year to effectively control inflation. "Fed mouthpiece" Nick Timiraos pointed out that the minutes of the Federal Reserve meeting released today further indicate that officials are generally willing to maintain interest rates at current levels in the upcoming meeting at the end of this month. As a result, the market has adjusted its expectations for the Federal Reserve's future monetary policy, putting pressure on risk assets.

CoinGlass data shows that the two-day pullback has led to nearly $1 billion in cryptocurrency leveraged derivative positions being liquidated, primarily long positions betting on price increases.

Macroeconomic Factors and Policy Expectations Dominate Market Sentiment

The recent pullback in Bitcoin's price reflects a correction in the market's earlier optimistic expectations. The previous optimism was mainly based on two assumptions: first, that the Federal Reserve would adopt a more accommodative monetary policy, i.e., actively cutting interest rates; second, that if Trump were to be re-elected as U.S. president, it would likely bring a clearer regulatory framework for the cryptocurrency industry. However, the current economic data and the Federal Reserve's statements have raised doubts about the realization of these two assumptions.

Philipp Pieper, co-founder of Swarm Markets, pointed out that in the absence of new market narratives, the cryptocurrency market is gradually returning to the logic of traditional financial markets. When interest rates are low, investors typically tend to increase their allocation to risk assets (such as cryptocurrencies and tech stocks) in search of higher returns. However, currently, due to the uncertainty surrounding the Trump administration's cryptocurrency policy, market sentiment remains cautious, and this uncertainty is expected to persist for some time.

A report from 10x Research also emphasized the importance of macroeconomic data on Bitcoin's price. The report stated that the Federal Reserve's response to U.S. economic data and the global liquidity situation are two key macro factors influencing Bitcoin's price movements. In the short term, Bitcoin's price may enter a volatile "banana zone." The "banana zone" vividly describes the turbulent price movements of assets under the influence of macro factors.

Arthur Hayes, founder of BitMEX, also analyzed the impact of U.S. dollar liquidity on Bitcoin's price in his latest blog post, stating that Bitcoin and cryptocurrency prices typically rise when U.S. dollar liquidity increases.

Institutions Accumulate Over 34,000 Bitcoins in the Past 30 Days

Despite the short-term adjustment pressure in the market, analysts remain optimistic about Bitcoin's long-term prospects. On-chain data from CryptoQuant shows that the market's "potential demand for Bitcoin remains very strong." The agency measures market demand by comparing the number of idle Bitcoins with the new Bitcoin supply from miners; when the reduction in idle Bitcoins far exceeds the new supply, it indicates strong market demand.

CryptoQuant analysts noted that around December 21, 2024, institutional investors sold approximately 79,000 Bitcoins in a week, leading to a 15% market pullback. However, large institutions subsequently took advantage of the market consolidation period, continuously buying below $95,000 using a time-weighted average price (TWAP) strategy. In the past 30 days, institutional investors have accumulated over 34,000 Bitcoins, providing buying support for Bitcoin's recent rebound.

Although there have been periods of adjustment in institutional portfolios, the trend of accumulating on-chain Bitcoins has remained evident since June 2023. This indicates that while retail demand is at a five-year low, institutional investors' interest in Bitcoin remains high.

CryptoQuant's analysis also shows that the pullback in Bitcoin has significantly reduced unrealized profits for traders, which is normal after a substantial rise. Currently, traders' realized price is about $88,000 (which typically serves as price support during bull markets).

Historical data shows that in the January following the last two U.S. presidential elections, Bitcoin experienced pullbacks, dropping 36% in both January 2017 and January 2021.

Jamie Coutts, Chief Crypto Analyst at Real Vision, commented on the X platform: "As the strengthening dollar becomes a real issue, I initially expected Bitcoin to be around $80,000 now, but it hasn't dropped to that level, indicating strong potential buying interest and market expectations that the Federal Reserve will have to take action; otherwise, the situation will start to deteriorate. Regardless of how events unfold, more liquidity is on the way, and Bitcoin should be much higher in six months."

In summary, the recent pullback in Bitcoin is primarily influenced by changes in macroeconomic data and Federal Reserve policy expectations. In the short term, the market may continue to maintain a volatile pattern. However, the ongoing accumulation behavior of institutional investors and the strong demand reflected in on-chain data will provide support for the long-term trend.

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