Altcoin Season Encounters “Christmas Apocalypse,” How Should the Crypto Market Trend Go?

[TL；DR]:

Last week, BTC fell below the $100,000 mark, and the decline in Altcoins was even greater, with huge liquidation amounts and strong market pessimism.

The reasons for the general decline in the market include the shift in the hawkish stance of the Federal Reserve, high-level leverage liquidation of Bitcoin, and deteriorating investor sentiment.

Despite BTC’s disappointing short-term price response, the correlation between BTC and many ALT and the stock market has slightly weakened this month, and the decline has not exceeded the historical average level.

Introduction

As Christmas approaches, the Federal Reserve’s decision to cut interest rates, the spread of risk aversion in the market, and the upcoming holiday effects are all affecting the market, causing Bitcoin and a group of Altcoins to suffer heavy losses. This article will analyze in depth the evolution of this market trend, explore its reasons, and provide prospects for future trends.

The Federal Reserve Quickly Changes Into the Hawkish Stance, and the Altcoin Season Becomes An “Altcoin Apocalypse”

The crypto market has recently experienced a sharp decline, and the month-long Altcoin season has suddenly turned into an “Altcoin Apocalypse.” This change coincides with the timing of the Federal Reserve’s recent hawkish stance.

The Federal Reserve unexpectedly lowered its expectations for future interest rate cuts in its last week’s policy statement. According to the Federal Reserve’s dot matrix, two interest rate cuts are expected to occur in 2025, each by 25 basis points. This expectation is much lower than the market’s previous expectations, leading to increased concerns about the economic outlook.

Source: reuters

As a result, the market’s optimism about a 25 basis point interest rate cut was quickly shaken by the hawkish stance, leading to significant selling pressure in both the US stock market and the crypto market.

The price of Bitcoin has dropped by over 15% in just a few days, and many Altcoins have experienced a decline of over 20%. Meanwhile, liquidation data also shows that a large number of leveraged trades have been forcibly liquidated, further exacerbating market panic.

According to Gate.io data, Bitcoin reached a historical high of $108,135 on December 17, but then quickly fell back, falling below $100,000 at one point last week, hitting a low of $92,291 last week, and ultimately hovering around $94,000. Meanwhile, Ethereum‘s performance is not optimistic, with its price declining from $4,000 to as low as $3,100, a daily drop of over 6%.

Source: Gate.io

With the sharp drop in coin prices, the clearing amount in the crypto market has also increased sharply. According to Coinglass data, during the most severe decline in the past 24 hours, the amount of liquidation in the crypto market reached $1.725 billion, with multiple liquidation amounts of $1.557 billion, involving approximately 574,168 people being liquidated. This situation reflects the excessive use of leverage in the market, and investors chose to panic sell after the Federal Reserve cut interest rates.

Based on past experience where long positions dominated liquidation, it has been shown that the crypto market has excessive leverage in the bullish aspect, which may have been triggered by taking profit and the opening of safe haven modes before the Federal Reserve’s decision to cut interest rates. This large-scale liquidation not only exacerbated market panic, but also further pushed down the price of the currency.

Christmas Apocalypse: Year-end Liquidity Tightening May Become the Main Reason for the Decline

As mentioned earlier, the Federal Reserve’s policy adjustment is one of the important reasons for the widespread decline in the crypto market. Although the 25BP interest rate cut this month was in line with expectations, the subsequent hawkish remarks by the Federal Reserve have sparked widespread concerns and panic in the market.

Tightening market liquidity is also one of the important reasons for the general decline in the crypto market. As the Federal Reserve’s interest rate hike cycle ends and global economic growth slows down, market liquidity is gradually tightening. This has led to many investors facing financial pressure and having to sell their crypto assets to obtain cash flow.

Changes in the macroeconomic environment have also significantly impacted the crypto market. Due to factors such as the slowdown in global economic growth and the intensification of geopolitical tensions, many investors have withdrawn their funds from high-risk crypto markets and turned to safer traditional financial markets.

Source: CoinGecko

In addition, with global inflation levels continuously rising and monetary policy tightening, many countries and regions are facing enormous pressure on their economic growth.

Many analysts have pointed out that Trump’s policies may lead to higher inflation and interest rates, which puts pressure on the crypto market and further exacerbates market pessimism and investors’ withdrawal behavior near the critical $100,000 threshold for Bitcoin.

In summary, as Christmas approaches, market liquidity gradually becomes thin, and trading volume decreases. Coupled with the hawkish stance of the Federal Reserve and the upcoming holiday, market sentiment becomes increasingly sluggish, leading to increased market volatility and a blow to investors’ confidence in risky assets.

What Is the Future Trend of A Bull Market with Frequent Sharp Drops?

Although there are differences in the market’s predictions of market development, everyone generally agrees that this bull market is a standard spot ETF-driven fund bull market. In fact, as an important bridge connecting traditional financial markets with cryptocurrencies, ETFs often reflect market investors’ emotions and expectations regarding their fund flows. In recent market fluctuations, the fund flows of crypto spot ETFs are particularly noteworthy.

Although the US Bitcoin and Ethereum spot ETFs reached cumulative net inflows of $457.2 million and $62.7 million, respectively last week and this week, many analysts believe that with market adjustments, there may be a return of funds in the future. In fact, it was during the two days when Bitcoin fell sharply last week that ETFs experienced the largest outflow of funds to date.

Source: coinglass

Of course, the recent sharp decline can easily be associated with the driving force of the US stock market, but according to FalconX’s research, the correlation between Bitcoin and the S&P 500 index has indeed declined in recent years. Especially since 2021, the trend of Bitcoin has gradually become independent of traditional stock markets, demonstrating its independent market logic and momentum.

On the other hand, according to CoinGecko data, although Bitcoin has experienced a significant pullback in recent times, its decline has not exceeded the historical average level. As Santiment recently pointed out, despite BTC’s disappointing short-term price response, the correlation between Bitcoin and many Altcoins and the stock market has slightly weakened this month. Compared to the S&P 500 index, the decline is less significant than normal fluctuations.

Source: sentiment

Therefore, based on comprehensive macro analysis and the volatility cycle of the crypto market, it can be seen that the current crypto market is facing multiple challenges and uncertainties, especially the wealth effect of Altcoins that continue to bleed in this bull market is much smaller than in the previous two bull markets. However, in the long run, the crypto market after the “Christmas Apocalypse” still has high investment value, and we will continue to monitor and share signs of market stabilization.