The cryptocurrency market experienced a notable decline today, with the total market capitalization falling by approximately 6.3% to around $3.35 trillion as of January 8. This downturn followed strong U.S. economic data that suggested potential interest rate hikes, which dampened the early-year momentum in crypto assets.
Bitcoin, a leading cryptocurrency, led this market downturn. It initially fell from the $100,000 mark, triggered by robust U.S. economic reports. On January 8, Bitcoin’s price decreased by as much as 6.35%, reaching an intra-day low of $5,279. This decline incited panic selling among investors, causing a broader decrease in cryptocurrency prices.
Ethereum also faced losses, with its value dropping to $3,300 on January 8, marking a 10% loss over 24 hours. Other prominent cryptocurrencies like Dogecoin, Cardano, and Solana suffered considerable drops of 12%, 11.7%, and 10%, respectively.
This sharp decline resulted in the liquidation of nearly $631 million in long positions across derivatives markets, marking the first significant leverage clearance of the year, including $111 million in long Bitcoin positions.
The broader financial markets mirrored this weakness. The S&P 500 index dropped by 1.1% on January 7, with the Nasdaq composite down by 375 points and the Dow Jones index witnessing its second consecutive daily loss. The Kobeissi Letter highlighted that over $625 billion of market cap had been erased from the stock market on that day.
Investor sentiment shifted to a risk-off mode following the strong U.S. economic data, lowering the expectations for potential rate cuts by the Federal Reserve in 2025. The probability of interest rates remaining unchanged at the Federal Reserve’s meeting on January 29 rose to 95% from 90.4% a week earlier.
Amid the downturn, the crypto market flipped the 50-day simple moving average (SMA) into resistance, signifying further potential challenges. However, a resurgence in buying pressure could push the market cap above the 50-day SMA, revisiting the local high realized on January 6.
Readers are reminded that all investment activities involve risks and should conduct their own research before making investment decisions.
