Key insights:
Capitalizing on fluctuations in the crypto market, with $527M in liquidations over the past 24 hours, indicates increasing caution among traders.
Stricter liquidity and escalating AI debt threats are prompting traders to pull back from riskier assets, leading to a market correction.
The cryptocurrency market experienced a downturn on Monday, with Bitcoin (BTC) revisiting the $85,000 mark and Ether (ETH) falling to $2,900. Traders have turned more risk-averse following a survey revealing deteriorating economic conditions in the United States and shifts in investor sentiment regarding potential candidates for the next US Federal Reserve Chair.
The resilience of the US 5-year Treasury after reaching a low of 98.64 on Wednesday strongly indicates that traders were seeking refuge from inflation, especially as the Fed reduced interest rates. The “One Big Beautiful Bill Act” extended tax credits and raised the US debt ceiling by $5 trillion, complicating the situation further due to the Fed’s recent choice to expand its balance sheet by $40 billion monthly.
Concerns remain within the consumer sector, as a CNBC survey indicated that 41% of Americans plan to cut back on holiday spending this year, rising from 35% in 2024. Moreover, 61% of respondents reported affordability issues due to stagnant wages amidst rising prices. October retail sales figures will be released on Tuesday, alongside November nonfarm payrolls data.
Excessive leverage in the cryptocurrency market remains a significant concern, with futures open interest at $135 billion. In the last 24 hours, over $527 million worth of bullish leveraged positions have faced liquidation, leading to worries of further downturns. Weakening in the artificial intelligence sector has prompted traders to increase cash reserves, moving away from riskier assets like cryptocurrencies.
Bridgewater Associates, a major hedge fund, reportedly expressed concerns that tech companies’ heavy dependence on debt markets for AI investments has reached a precarious stage, according to Reuters. “Moving forward, there is a reasonable chance we may soon find ourselves in a bubble,” wrote Bridgewater’s Co-Chief Investment Officer Greg Jensen in a note.
Demand for leverage on short (sellers) positions surged on Bybit, causing the annualized funding rate to dip below zero. This unusual scenario, where longs (buyers) receive payments to maintain their leveraged positions, typically doesn’t last long due to the emergence of arbitrage opportunities. Nevertheless, liquidity has tightened considerably since the crash on October 10, with some market makers potentially incurring heavy losses.
Part of the decline in the US stock market on Monday can be linked to a reduction in Kevin Hassett’s chances of succeeding Jerome Powell as the next Fed Chair. CNBC noted that President Donald Trump’s inner circle has advocated for a candidate perceived as more independent. Trump remarked on Friday that Kevin Warsh would also be a strong choice, which alleviated worries regarding the stability of the US dollar.
The US Dollar Index (DXY) found support around the 98 mark after four consecutive weeks of decline. This stability implies greater confidence in the US government’s capability to avert a recession, which is somewhat supportive of 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 a separate financial system, thus the relative strength of the US dollar diminishes the demand for alternative hedges. The high leverage present in the cryptocurrency market, combined with broader macroeconomic uncertainties, is likely to keep putting pressure on prices.
This article is for informational purposes only and should not be construed as, legal, tax, investment, financial, or other advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect the views or opinions of Cointelegraph. While we aim to provide accurate and timely information, Cointelegraph does not guarantee the accuracy, completeness, or reliability of any information contained herein. This article may include forward-looking statements that are vulnerable to risks and uncertainties. Cointelegraph disclaims any liability for losses or damages incurred from reliance on this information.
This article does not offer investment advice or recommendations. Each investment and trading action carries risk, and readers should perform their own research before making a decision. While we strive to provide accurate and timely information, Cointelegraph cannot assure the accuracy, completeness, or reliability of any information in this article. This article may contain forward-looking statements that are subject to risks and uncertainties. Cointelegraph will not be responsible for any loss or damage resulting from reliance on this information.
