This week, cryptocurrency market investors can't complain about a lack of volatility. We're experiencing a true rollercoaster, as the sentiment has shifted from extreme panic at the beginning of the week to extreme euphoria now. Several catalysts have contributed to both movements, overlapping to create the current dynamic.
Factors Behind Earlier Declines:
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Open real account TRY DEMO Download mobile app Download mobile app- DOJ Approval: The U.S. Department of Justice approved the sale of nearly 69,000 Bitcoins, although this has yet to be executed (and might not happen at all).
- Hawkish Fed: The Federal Reserve's stance and significantly lowered expectations for monetary policy easing in 2025.
- Strong Economic Data: Robust labor market data and higher-than-expected leading indicators for prices, such as the significantly elevated ISM services price subindex and higher inflation expectations in the University of Michigan report.
These factors led to a substantial strengthening of the U.S. dollar and a rise in U.S. Treasury yields (excluding the DOJ decision, which only impacted the cryptocurrency market). Consequently, we saw sharp declines in both stock and cryptocurrency markets, with indices extending last week's losses on Monday. However, a rebound was quick to follow, as the past two days have brought three key growth-oriented catalysts:
Recent Growth Catalysts:
- Lower-than-Expected PPI Inflation Report: Yesterday’s report showed significantly lower readings for both core and headline measures.
- Lower-than-Expected CPI Core Inflation: Today's report highlighted a drop in the core inflation measure, despite the headline inflation rising for the third consecutive month (but in line with expectations).
- Strong Start to Earnings Season on Wall Street: Today, the first results from the banking sector were revealed, with most major banks seeing 4-6% gains.
As we can see, early January has brought an abundance of impactful information. The strong upward reaction can be attributed to the extremely pessimistic sentiment at the start of the week. Interestingly, during this same period, spot ETF funds did not sell their Bitcoin holdings as panic-stricken as the broader Bitcoin market.
Additionally, sentiment is being bolstered by the upcoming inauguration of Donald Trump next Monday. Investors clearly have high hopes for the new U.S. administration's pro-cryptocurrency stance and are expecting initial policy changes early in the term. Furthermore, the annual World Economic Forum in Davos will also begin next week, with President Trump set to participate. It's highly likely that cryptocurrencies and blockchain technology will once again dominate the technology discussions at the conference this year.
