The crypto market witnessed a whirlwind of activity as a recent bout of selling swept through the sector, dampening the initial enthusiasm ignited by President-elect Donald Trump's positive stance towards cryptocurrencies. Bitcoin, the flagship digital asset, dipped below $95,000 on Tuesday, triggering a broader decline in smaller cryptocurrencies, with some experiencing intraday drops of up to 15%, marking one of the most significant plunges of 2024.
Following the US election on Nov. 5, speculators flocked to crypto assets, driven by Trump's promises to establish a favorable regulatory environment and his controversial endorsement of a national Bitcoin reserve. However, the inherent volatility of digital assets exposed investors to sudden market exits. Bitcoin hit an all-time high of $103,800 on Dec. 5 but struggled to sustain levels above $100,000, leading to a substantial $200 billion decrease in the overall crypto market value in the past 24 hours according to CoinGecko.
Sean Farrell, Head of Digital-Asset Strategy at Fundstrat Global Advisors LLC, attributed the recent market movement to a broader deleveraging trend across the crypto ecosystem. One contributing factor could be caution ahead of the release of US inflation data, which might influence expectations regarding Federal Reserve interest-rate decisions.
The past day saw approximately $1.6 billion in bullish crypto positions using derivatives liquidated, reflecting a unwinding of leveraged bets as market sentiment shifted. President-elect Trump's recent appointments, including a crypto advocate as the next head of the US securities regulator and the establishment of a White House official for artificial intelligence and crypto matters, signal a potential shift in policy favoring digital assets.
Investors foresee a bullish future for digital tokens as the incoming administration potentially rolls back regulations imposed by the previous government. However, skeptics warn that wider acceptance of cryptocurrencies could expose the market to a range of risks. Notably, $10 billion has flowed into US spot-Bitcoin exchange-traded funds since Trump's election victory, while prominent Bitcoin accumulator MicroStrategy Inc. announced an additional $2.1 billion purchase of the token on Monday.
Technical analyst Katie Stockton from Fairlead Strategies LLC advised a "neutral short-term bias" following Bitcoin's struggle to sustain levels above $100,000. Despite Bitcoin trading at $96,615 in London on Tuesday, smaller tokens like Ether and Dogecoin faced challenges in gaining traction in the market.
In conclusion, the recent market dynamics underscore the delicate balance between enthusiasm and caution in the crypto space. With Trump's administration poised to potentially usher in a more crypto-friendly regulatory environment, the industry braces for a period of significant change and potential challenges on the horizon.