What Are the Reasons Behind Today’s Crypto Market Crash?

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What Are the Reasons Behind Today’s Crypto Market Crash?

Key Takeaways:

Strong U.S. economic data caused fears of interest rate hikes.
Bitcoin and altcoins saw sharp declines, leading to panic selling.
Macroeconomic uncertainties and market sentiment play a huge role.

Table of Contents

What Happened?

The crypto market took a major hit on January 7-8, 2025. Global market capitalization dropped 6.3%, falling to $3.35 trillion. What triggered this?

The main culprit is stronger-than-expected U.S. economic data. This raised fears of rising interest rates and pushed investors into a “risk-off” mode, pulling money out of cryptocurrencies.

Bitcoin Leads the Way Down

Bitcoin (BTC) fell below the $100,000 mark, losing 6.35% in one day and hitting $95,279 on January 8. This drop created a ripple effect across the market.

Ethereum (ETH): Down 10% in 24 hours, dropping to $3,300.
Altcoins: Dogecoin (DOGE), Cardano (ADA), and Solana (SOL) all saw losses of over 10%.

Over $631 million in long positions were liquidated, including $111 million from Bitcoin alone. It’s clear the market was overbought and highly vulnerable.

Over $631 million in long positions were liquidated

Stock Market Weakness Adds Pressure

The crypto crash mirrored the U.S. stock market’s struggles. On January 7, the S&P 500 dropped 1.1%, and the Nasdaq lost 375 points.

Stronger U.S. economic data, like the December ISM PMI report rising to 54.1, fueled inflation concerns. This dampened hopes that the Federal Reserve would cut rates in 2025.

There is a 95% probability that interest rates will remain unchanged at the central bank meeting on January 29, up from 90.4% just a week ago and 62.7% over a month ago, according to the CME FedWatch tool.

Interest rates will remain unchanged. Source: CME FedWatch tool

Asset Declines on January 7, 2025:

S&P 500: -1.1%
Nasdaq Composite: -375 points
Bitcoin: -6.35%
Ethereum: -10%

Stock declines

Investors moved their money into safer assets, like government bonds, pushing cryptocurrencies further down.

Technical Resistance and RSI Divergence

The sell-off has created new resistance levels. For Bitcoin, the 50-day Simple Moving Average (SMA) is acting as a barrier.

Also, the Relative Strength Index (RSI) shows divergence. While prices hit higher highs, RSI made lower highs, signaling weakening momentum. This led traders to sell at recent peaks.

If the selling continues, the market could test the $3.18 trillion support level. On the flip side, a bounce-back might push it toward $3.54 trillion, the recent high on January 6.

Other Factors at Play

U.S. Treasury Yields: The 10-year yield climbed to 4.70%, attracting investors away from crypto.
Federal Reserve Policy: No sign of rate cuts anytime soon, adding to market pressures.
Economic Uncertainty: New fiscal policies and debt ceiling worries added instability.

Final Thoughts

The crypto market’s sharp decline highlights its sensitivity to macroeconomic factors and investor sentiment. While painful, corrections like this are normal and could offer opportunities for long-term investors.

Stay informed, and use moments like these to rebalance your portfolio. Recovery could be closer than it seems.