Crypto markets had a rough week as a confluence of macroeconomic pressures, market liquidations, and a surprise DOJ decision weighed heavily on sentiment. In this week’s MDD, we break down what has been an ugly week for crypto and broader macro.
Just as the market was still recovering from the Fed’s hawkish blow, with broader crypto bouncing back strongly into the New Year, the rally quickly fizzled out as strong US economic data earlier this week set the tone for the market unease that followed. The ISM Services PMI beat expectations, signalling robust growth in the services sector, and job openings unexpectedly increased, adding to fears that the labour market remains too strong, and stoking concerns about a slower pace of Fed easing. The result? U.S. Treasury yields surged, sending the dollar higher and sucking liquidity out of riskier assets such as crypto. BTC suffered a double-digit loss, down roughly 14% from this week’s highs of around USD 107,000.
BTC faced another headwind this week as the US Department of Justice announced approval to liquidate 69,000 BTC seized from the Silk Road. Worth around USD 6.5 billion, this potential sell-off appears to have spooked traders and cleared out weaker hands. Why does this matter? The DOJ’s BTC holdings represent a significant portion of total market liquidity. In an already unstable macro environment, this news added fuel to the fire. Despite this, BTC has held on to key support at around USD 92,000, but a break below this level could pave the way for a deeper pullback.
In addition to the global risk-off sentiment, the slowdown in China continues to cast a long shadow. Deflationary pressures in China are dragging down global growth expectations, adding to concerns about a lack of demand for risky assets. While Beijing is expected to unleash liquidity to reflate its economy, markets are still waiting for concrete action. Meanwhile, the prospect of impending tariffs under the incoming Trump administration has kept markets on edge, with Trump reportedly considering a national economic declaration to introduce a new tariff programme.
In a parallel story, defunct crypto exchange FTX began the process of paying back creditors this week. While the repayment represents a potential USD 16 billion injection into the market, concerns are growing about how and where this liquidity will flow.
As all of these narratives converge, the crypto market is experiencing a classic shakeout, reflecting broader macro weakness, as it awaits the next catalyst around the US inauguration in 12 days’ time, as well as today’s Non-Farm Payrolls (NFP) report, which is a key risk event heading into the weekend. With forecasts suggesting 160,000 new jobs were created, down from November’s 227,000, markets will be watching closely after this week’s strong US economic data. A slowdown in job creation could support expectations for interest rate cuts later this year. However, any upside surprise could fuel concerns about the Fed’s hawkish stance, pushing yields higher and putting further pressure on risk assets such as crypto. These data are likely to set the tone for how the market starts next week.
This week’s events underline the interconnectedness of crypto with broader macro forces. As we navigate through this turbulent period, it is worth remembering that crypto markets have historically emerged stronger from such shakeouts, and we continue to believe that the conditions remain in place for a strong year for crypto assets.
Hold on tight and keep your eyes on the horizon.
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