Bitcoin and ether, two of the largest cryptocurrencies, experienced sharp declines on Wednesday as fears of prolonged inflation weighed on global markets.
- Bitcoin (BTC): Fell 5%, trading at $96,527, after briefly surpassing the $100,000 milestone earlier this week.
- Ether (ETH): Dropped 8.5% over the past 24 hours, reaching $3,353.
- Other Cryptocurrencies: Major tokens like Dogecoin (DOGE) and Avalanche (AVAX) saw losses exceeding 10%.
Macro Fears Trigger a Market Pullback
The decline follows macroeconomic signals suggesting persistent inflation and tighter monetary policies.
- Stock Market Impact: U.S. equities also faced setbacks, with the NASDAQ and S&P 500 both falling over 1% on Tuesday.
- Inflation Concerns: Faster-than-expected growth in the U.S. economy, as indicated by ISM data, fueled worries about prolonged inflation.
- Bond Yields Spike: The 10-year Treasury yield surged to its highest level since April, reflecting investor anxiety.
“Both crypto and traditional markets are reacting to the Federal Reserve’s likely decision to maintain elevated interest rates for longer, compounded by inflation fears,” said Min Jung, an analyst at Presto Research.
Federal Reserve and Market Sentiment
Comments from Federal Reserve Chair Jerome Powell in December hinted at a steadfast approach to inflation control, dampening hopes for imminent rate cuts. Analysts now expect the Fed to maintain its target rate between 4.25% and 4.5% at its upcoming meeting on January 29, according to the CME FedWatch Tool.
“Jerome Powell’s December remarks, coupled with stronger-than-anticipated U.S. economic data, have amplified market unease, leading to heightened volatility in both crypto and traditional asset classes,” noted Rachael Lucas, a crypto analyst at BTC Markets.
Trump’s Inauguration Looms Large
The upcoming inauguration of President-elect Donald Trump on January 20 is adding to market uncertainty. Analysts suggest that Trump’s crypto-friendly administration, with key appointments such as Scott Bessent as Treasury Secretary and Elon Musk as an advisor, may signal a shift in U.S. economic and cryptocurrency policies.
“With a pro-crypto Congress, the new administration’s approach could pave the way for regulatory clarity and adoption,” Lucas added.
Key Economic Events Ahead
Investors are closely watching several upcoming indicators, including:
- FOMC Minutes: Expected to shed light on the Fed’s policy outlook.
- CPI Data (Jan. 15): A key gauge of inflation risks.
- Non-Farm Payrolls (This Week): Likely to influence market sentiment.
Outlook
While short-term volatility persists, analysts see potential for recovery. “Bitcoin and ether remain attractive hedges against inflation and macroeconomic instability, especially as capital seeks alternatives to traditional assets,” said Jung.
Investors remain cautious as they navigate the interplay between economic policies, inflation concerns, and the evolving cryptocurrency landscape.
