The cryptocurrency market recently experienced a significant decline, with a staggering loss of $250 billion within a single day on January 7. This sharp sell-off saw Bitcoin (BTC), the market’s leading cryptocurrency, plummet to $96,000 from a previous high of $102,000. This article delves into the critical factors behind Bitcoin’s price drop and its implications for the broader market.
Key Reasons for the Drop
The decline in Bitcoin’s price coincided with an increase in the 10-year U.S. Treasury yield, attributed to unexpectedly strong December Purchasing Managers’ Index (PMI) data. The Institute for Supply Management reported a rise in the PMI to 54.1 from November’s 52.1, indicating robust growth within the U.S. services sector. This development sparked concerns that inflation might remain persistently high, potentially delaying anticipated Federal Reserve interest rate cuts. As a result, higher yields tend to negatively impact high-risk assets, including cryptocurrencies.
Additionally, the November Job Openings and Labor Turnover Survey (JOLTS) revealed a rise in job openings, albeit with a slowdown in hiring activity. Simultaneously, worker confidence appeared to wane, as evidenced by a decrease in the quit rate from 2.1% in October to 1.9%.
Impact on the Market
The downturn in the cryptocurrency market exerted immense pressure on traders, resulting in the liquidation of $561 million worth of long positions within just 24 hours. Notably, the largest liquidation order was recorded on Binance, involving $17.74 million in ETHUSDT. Other cryptocurrencies were not spared, with Ethereum dropping over 8%, Solana declining by more than 9%, and XRP falling by 5%.
Bitcoin ETF Recorded an Outflow
The price drop also had an adverse effect on Bitcoin Exchange-Traded Fund (ETF) inflows. After witnessing inflows for two consecutive days, Bitcoin ETFs faced outflows totaling $543.7 million on January 7. Significant outflows were observed from prominent investment firms such as Ark Investment, Grayscale, Bitwise, and Fidelity, all of which had previously made substantial investments in Bitcoin ETFs.
What’s Next for Bitcoin?
According to Glassnode analyst James Check, the sell pressure on Bitcoin is beginning to ease, but the influx of fresh demand is also slowing. Spot trading volumes have decreased by 53% since November, indicating reduced market activity. However, if the market can regain its momentum, reaching the $100,000 mark remains a critical target for traders. Conversely, if Bitcoin fails to maintain its position above the $95,668 support level, a further decline to $93,625 could be on the horizon.
