The cryptocurrency market has plummeted, with over 300,000 people liquidated: What are the core causes?

Original Title: "Macro Dose - Crypto Markets Crashing: What You Need to Know"

Author: Alea Research

Compiled by: Tim, PANews

In yesterday's report, we explored several structural changes that have occurred in the cryptocurrency market over the past few months. As of now, before the U.S. market opens, the total market capitalization of the crypto sector has dropped nearly 9%, with Bitcoin falling over 7% in the past 24 hours. Although Bitcoin rebounded to the $89,000 mark after hitting a new low above $87,000, the current trend shows signs of fatigue.

In today's report, we will once again examine market trends, attempting to clarify the causes behind the current downtrend in cryptocurrencies and assess the necessary conditions for the market to regain bullish sentiment.

Current Macro and Crypto Environment

Over the past year, the overall trend of the crypto market has shown a high correlation with Bitcoin. Starting from the second quarter of 2024, Bitcoin and altcoins entered a period of approximately six months of sideways movement. With the upcoming U.S. elections in November acting as a catalyst, the entire crypto market saw a nearly universal rise. However, this pattern has recently taken a sharp turn, evidenced by the rapid divergence in the trends of Bitcoin and altcoins.

This sell-off does not have a clear trigger pointing to the cryptocurrency sector. We have discussed in detail the collapse of the Libra token and the recent attack on Bybit in our member communications and emails. The chain reaction triggered by the Libra token has severely impacted the Solana ecosystem, with the SOL token plummeting nearly 45% in the past month. The Bybit incident has now been largely controlled, with the exchange claiming to have raised enough ETH to cover a funding gap of about $1.4 billion.

Yesterday, there was even positive news: Castle Securities announced it would increase its investment in the crypto sector, which may be related to the increasingly clear regulatory environment.

Previously, Robinhood disclosed that one-third of its fourth-quarter revenue came from crypto services and plans to continue increasing its focus in this area, but the market reacted lukewarmly to such positive news from traditional financial institutions entering the space.

Castle Securities announced it will increase its efforts in the cryptocurrency market-making sector.

The current market may be more focused on news from the U.S. government, holding a cautious attitude towards any policy developments that do not reach the "Strategic Bitcoin Reserve" (SBR) level, even viewing them as a selling opportunity for "good news already priced in." This tendency can be seen from the market's reactions to statements and executive orders regarding cryptocurrencies from President Trump, crypto and AI affairs director David Sacks, and Senator Cynthia Lummis.

Current market volatility may largely be related to Trump's policies and the unexpected reactions they provoke. From certain perspectives, the former president has shown a polarized approach to fulfilling campaign promises: some policies that involve core market concerns have seen insufficient fulfillment, while others have advanced beyond expectations, exacerbating market uncertainty.

1. Tariff Policy

Since taking office, Trump has repeatedly announced tariffs on Canada and Mexico, only to delay their implementation; he then implemented new metal tariffs affecting both countries; recently, he declared that he would ultimately impose comprehensive tariffs on these two countries. This flip-flopping not only increases market uncertainty but may also lead to a "boy who cried wolf" credibility crisis in policy.

2. Immigration Policy

The Trump administration has deported fewer illegal immigrants than previous administrations. This may be a positive signal for the market, as large-scale rapid deportations could lead to market disruptions in labor-intensive industries such as agriculture, residential construction, and services.

3. Foreign Policy

The Trump administration has shown a tendency to distance itself from Europe, negotiating directly with Russia while bypassing countries like Ukraine. While this may not necessarily trigger a significant negative reaction in the market, it has indeed caught some observers off guard.

The market has always disliked uncertainty, and the Trump administration demonstrated its ability to create uncertainty in its first month in office. Since the beginning of the year, U.S. stocks have underperformed European stocks and Chinese concept stocks, with the Nasdaq index nearly falling into negative territory. This may reasonably explain why cryptocurrencies performed poorly in the first quarter: despite Michael Saylor's "strategic accumulation" providing liquidity support and ETF inflows, Bitcoin remained relatively high, but the overall crypto market lagged significantly.

Target Shift, Debt Over Equity?

The poor performance of both cryptocurrencies and U.S. stocks may be closely related to the Trump administration's policy focus shifting towards lowering bond yields rather than boosting the stock market (not to mention Bitcoin prices, which the White House has rarely focused on). If lowering bond market yields is viewed as a measure of policy success, then the current situation may be more optimistic than it appears when judged solely by stock market performance.

Since Trump took office, the yield on the U.S. ten-year Treasury bond has significantly declined. This indicator can serve as an alternative benchmark for assessing the long-term resilience of the U.S. economy: lower interest rates help reduce the cost of capital for homebuyers and large corporations.

In the current macro landscape, the U.S. government needs to seek a balance between short-term interests and long-term goals, as stock market euphoria may not necessarily align with the success criteria set by Trump's team. Over time, the market may gradually adapt to the unconventional operations of this administration. On the positive side, if regulatory barriers can be substantially removed (as hinted by DOGE), it could unleash more economic vitality. However, in the short to medium term, large-scale layoffs and budget cuts by the federal government may have a contractionary effect on the economy and siphon off some funds that could have been injected into the market.