Market Shift: Bitcoin’s Weekly Decline Sparks Caution
The crypto market has taken a surprising turn, with Bitcoin experiencing its first weekly decline since Donald Trump’s election victory. This sudden shift in momentum can be attributed to the Federal Reserve’s cautious policy outlook, which has tempered optimism over the president-elect’s support for the crypto sector.
A Wider Crypto Market Gauge Takes a Hit
The largest digital asset, Bitcoin, has seen a significant drop of over 7% in the past seven days, marking the biggest decline since September. Moreover, a broader crypto market gauge, which includes smaller tokens like Ether and Dogecoin, has suffered an even sharper decline of around 10%.
Federal Reserve’s Hawkish Pivot Dampens Speculative Spirits
The Fed’s decision to deliver a third straight interest-rate cut, while signaling a slower pace of monetary easing next year, has sent global stocks into a tailspin. This hawkish pivot has also dampened the speculative enthusiasm that had been building in the crypto market, fueled by Trump’s pledge of friendly regulations and his backing for a national Bitcoin stockpile.
Record Outflow from US Exchange Traded Funds
A record outflow from US exchange traded funds investing directly in Bitcoin last week is expected to weigh on prices in the near term. According to Sean McNulty, director of trading at liquidity provider Arbelos Markets, “We should hold the $90,000 level for Bitcoin into the year end, but if we break below that could trigger further liquidations.”
Options Market Signals Caution
The options market has seen significant activity, with large buyers snapping up January, February, and March puts in $75,000 to $80,000 strikes. This “meaningful downside hedging” suggests that investors are preparing for potential volatility in the coming months.
Choppy Price Action Ahead
Despite the recent decline, many experts believe that Bitcoin will continue on a “bullish trajectory” into the first quarter of 2025. However, the near-term outlook is uncertain, with choppy price action expected ahead of a major options expiry event on December 27.
All Eyes on MicroStrategy
Traders are closely watching MicroStrategy Inc., a former dot-com-era software maker, which has been making weekly buys of Bitcoin. Will the company continue its buying spree into US Monday and hit the next price trigger? Only time will tell.
A Year of Reckoning Ahead?
As the crypto market navigates this period of uncertainty, one thing is clear: 2025 is shaping up to be a year of reckoning for the industry. With regulatory changes on the horizon and market volatility expected to continue, investors would do well to exercise caution and stay informed.
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