The cryptocurrency market faced significant declines on Wednesday, with Bitcoin, Ether, and other major tokens retreating sharply. Escalating fears of prolonged inflation and tighter monetary policy weighed heavily on investor sentiment.
Bitcoin and Ether Lead the Decline
Bitcoin fell 5% to $96,527 on Wednesday in Asia, retreating from its peak above $100,000 earlier this week, according to The Block’s price index. Ether suffered a steeper drop, plunging 8.5% over the past 24 hours to $3,353. Other prominent cryptocurrencies, including Dogecoin and Avalanche, registered losses exceeding 10%, contributing to a 7.48% slump in The Block’s GMCI 30 index, which tracks the performance of the top 30 digital assets.
Optimism Fades Amid Macroeconomic Woes
The market rally earlier this week, driven by growing enthusiasm over Donald Trump’s imminent presidential inauguration, was short-lived. Analysts highlighted increased perpetual futures funding rates as an indicator of the optimism. However, concerns over persistent inflation quickly dampened the mood.
“Markets, including crypto, stumbled after ISM data pointed to faster-than-expected economic growth in the U.S., heightening inflation fears,” said Min Jung, an analyst at Presto Research. The sell-off extended beyond crypto, with the NASDAQ and S&P 500 both losing more than 1% on Tuesday.
Fed Rate Expectations Weigh on Sentiment
The recent economic data spurred expectations that the Federal Reserve would maintain elevated interest rates for an extended period. The CME Group’s FedWatch Tool now assigns a 95.2% probability that rates will remain at 4.25% to 4.5% following the Fed’s Jan. 29 meeting.
“Fed Chair Jerome Powell’s comments in December signalled a firm commitment to combating inflation, curbing hopes for rate cuts,” noted Rachael Lucas, a crypto analyst at BTC Markets. Traders remain cautious as markets digest Powell’s stance alongside potential inflationary impacts from President Trump’s proposed tariffs.
Anticipation Builds for Trump’s Inauguration
As Donald Trump’s Jan. 20 inauguration approaches, investors are bracing for heightened market volatility. The new administration’s pro-crypto agenda, underscored by the nomination of Scott Bessent as Treasury Secretary and Elon Musk as an advisor, has sparked both excitement and uncertainty.
Lucas remarked, “A pro-crypto Congress could signal regulatory shifts, but the market’s immediate reaction will hinge on economic policies and broader risk sentiment.”
Key Data Ahead
Traders are closely monitoring several upcoming events, including the release of the Federal Open Market Committee (FOMC) minutes, non-farm payroll data, and the Consumer Price Index (CPI) report on Jan. 15. These will offer crucial insights into inflation trends and the Fed’s future monetary policy trajectory.
The crypto market’s near-term outlook hinges on how these developments influence inflation expectations and investor risk appetite. For now, heightened caution prevails.
