Todays highlights:
Capitalize on fluctuations in the crypto market, with $527M in liquidations recorded over 24 hours, indicating increased caution among traders.
As liquidity tightens and AI debt concerns rise, traders are moving away from riskier assets, which is leading to a market correction.
The cryptocurrency market experienced a correction on Monday, with Bitcoin (BTC) revisiting the $85,000 mark and Ether (ETH) falling to $2,900. Traders adopted a more conservative approach following a survey that indicated deteriorating economic conditions in the United States and shifts in expectations regarding the selection of the next US Federal Reserve Chair.
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The stability of the US 5-year Treasury, after reaching a low of 98.64 on Wednesday, strongly indicates that traders are seeking inflation protection, particularly as the Fed lowers interest rates. The “One Big Beautiful Bill Act” increased tax credits and raised the US debt ceiling by $5 trillion, complicating matters further with the Fed’s recent decision to expand its balance sheet by $40 billion monthly.
Consumer spending remains a concern, as a CNBC survey revealed that 41% of Americans intend to reduce their holiday spending this year, rising from 35% in 2024. Furthermore, 61% of participants pointed to affordability issues due to stagnant wages amidst rising prices. Retail sales data for October in the US will be released on Tuesday, coinciding with November’s nonfarm payroll figures.
High levels of leverage in the cryptocurrency market remain a significant concern, with futures open interest at $135 billion. Over $527 million in bullish leveraged positions have been liquidated in the last 24 hours, prompting fears of further declines. Weakness in the AI sector is pushing traders to boost cash reserves, leading them to withdraw from riskier assets like cryptocurrencies.
Bridgewater Associates, a major hedge fund, reportedly warned that tech companies’ heavy dependence on debt markets for AI funding has reached a precarious point, according to Reuters. “We may be nearing a bubble soon,” said Bridgewater’s Co-Chief Investment Officer Greg Jensen in a memo.
The demand for leverage on short (seller) positions surged on Bybit, causing the annualized funding rate to dip below zero. This atypical scenario, where longs (buyers) receive payments to keep their leveraged positions open, usually does not last long as arbitrage opportunities arise. However, liquidity has significantly tightened since the crash on October 10, and some market makers might be facing substantial losses.
Part of Monday’s drop in the US stock market can be traced to a decrease in Kevin Hassett’s chances of succeeding Jerome Powell as the next Fed Chair. CNBC reported that President Donald Trump’s close advisors advocated for someone viewed as more independent. Trump mentioned on Friday that Kevin Warsh would also be a suitable choice, which alleviated concerns about the US dollar’s fragility.
The US Dollar Index (DXY) found support at the 98 level after four consecutive weeks of decline. This stability indicates increased confidence in the US government’s capacity to avoid a recession, which may be somewhat favorable for the stock market but less so for cryptocurrencies.
Related: Bitcoin to $40K? Macro analyst Luke Gromen turns pessimistic on Bitcoin
Bitcoin and Ether are typically regarded as components of an independent financial system, thus the dollar’s relative strength diminishes the appeal of alternative hedges. The combination of excessive leverage in the cryptocurrency market and broader macroeconomic uncertainties will likely continue to impact prices negatively.
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