Key takeaways:
Capitalize on the crypto market fluctuations, with $527M in liquidations over 24 hours, indicating increased caution among traders.
Reduced liquidity and escalating AI debt concerns prompt traders to move away from high-risk assets, contributing to a market adjustment.
The cryptocurrency market experienced a correction on Monday, with Bitcoin (BTC) revisiting the $85,000 mark and Ether (ETH) declining to $2,900. Traders displayed heightened risk aversion following a survey revealing deteriorating economic conditions in the United States and shifts in investor sentiment towards potential candidates for the next US Federal Reserve Chair.
The persistence of the US 5-year Treasury, following a dip to 98.64 on Wednesday, reinforces the notion that traders are seeking inflation protection, especially in light of the Fed’s interest rate cuts. The “One Big Beautiful Bill Act” has extended tax credits and increased the US debt ceiling by $5 trillion, further complicated by the Fed’s recent expansion of its balance sheet by $40 billion per month.
Consumer sentiment remains a pressing concern, as a CNBC survey showed that 41% of Americans intend to cut back on holiday spending this year, an increase from 35% in 2024. Moreover, 61% of participants reported affordability issues amid stagnant wages and rising prices. The US retail sales data for October will be published on Tuesday, alongside November’s nonfarm payroll figures.
The prevalent excessive leverage within the cryptocurrency market presents a significant challenge, with futures open interest at $135 billion. Over $527 million in bullish leveraged positions have been liquidated in the last 24 hours, heightening fears of further downturns. A slump in the artificial intelligence sector has also prompted traders to bolster cash positions, steering clear of riskier assets like cryptocurrencies.
Bridgewater Associates, a prominent hedge fund, has reportedly indicated that the tech sector’s excessive reliance on debt markets for AI investment funding has reached a critical juncture, according to Reuters. “There is a reasonable chance that we may soon find ourselves in a bubble,” noted Bridgewater’s Co-Chief Investment Officer Greg Jensen.
The demand for leverage on short positions surged on Bybit, causing the annualized funding rate to dip below zero. This unusual phenomenon, where longs are incentivized to maintain their leveraged positions, seldom persists for long due to emerging arbitrage opportunities. However, post the Oct. 10 crash, liquidity has considerably tightened, leading to potential significant losses for some market makers.
Part of Monday’s decline in the US stock market can be linked to a decrease in Kevin Hassett’s prospects of succeeding Jerome Powell as the next Fed Chair. CNBC reported that President Donald Trump’s inner circle favored someone viewed as more independent. Trump also mentioned on Friday that Kevin Warsh would be an excellent choice, which alleviated concerns regarding the US dollar’s stability.
The US Dollar Index (DXY) found support at the 98 level after four weeks of decline. This stabilization indicates improved confidence in the US government’s ability to circumvent a recession, which is somewhat beneficial for the stock market but less so for cryptocurrencies.
Related: Bitcoin to $40K? Macro analyst Luke Gromen turns bearish on Bitcoin
Bitcoin and Ether are typically viewed as components of an independent financial ecosystem, thus a stronger US dollar diminishes the appeal of alternative hedges. The excessive leverage present in the cryptocurrency market, coupled with overarching macroeconomic uncertainties, is likely to continue suppressing prices.
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