- Cryptocurrency market correction occurred with Bitcoin retesting $85,000 and Ether declining to $2,900.
- Over $527 million in leveraged crypto positions were liquidated within 24 hours, indicating increased trader caution.
- US economic concerns and changes in Federal Reserve leadership expectations influenced market behavior.
- Rising debt risks in the AI sector prompted traders to reduce exposure to risky assets.
- The US Dollar Index stabilized at 98, supporting stock markets but suppressing demand for cryptocurrencies as alternative hedges.
The cryptocurrency market experienced a correction on Monday, as Bitcoin retraced to the $85,000 level and Ether fell to $2,900. This followed a survey revealing worsening economic conditions in the United States and shifts in expectations for the next Federal Reserve Chair, prompting traders to become more risk-averse.
US 5-year Treasury notes showed resilience after hitting a low of 98.64 earlier in the week, suggesting investors sought protection from inflation amid recent Federal Reserve interest rate cuts. The “One Big Beautiful Bill Act” extended tax credits and raised the US debt ceiling by $5 trillion, complicating fiscal dynamics further as the Fed expands its balance sheet by $40 billion per month.
Consumer spending remains challenged, with a CNBC survey indicating that 41% of Americans plan to reduce holiday expenditures this year, up from 35% in 2024. Affordability concerns affected 61% of respondents, linked to stagnant wages amid rising prices. Upcoming US retail sales and nonfarm payroll data releases will provide additional insights.
Leverage in the crypto market continues to pose risks, with futures open interest at $135 billion. More than $527 million in bullish leveraged positions were liquidated within a day, raising concerns about further declines. Weakness in the Artificial Intelligence sector has caused traders to shift towards cash, exiting riskier assets like cryptocurrencies.
Bridgewater Associates highlighted the increasing risks linked to tech firms’ reliance on debt financing for AI investments, warning of a potential bubble, as reported by Reuters. “Going forward, there is a reasonable probability that we will soon find ourselves in a bubble,” stated Co-Chief Investment Officer Greg Jensen.
On Bybit, a surge in demand for short position leverage pushed the annualized funding rate below zero, an uncommon state where buyers earn payments to maintain positions. This tends to be short-lived due to arbitrage but points to tightened liquidity since the October 10 market drop.
Declines in the US stock market partly stemmed from reduced odds for Kevin Hassett to replace Jerome Powell as Fed Chair. President Donald Trump’s inner circle has shown preference for an independent candidate, with Trump mentioning Kevin Warsh as another option, easing concerns regarding the US dollar’s stability.
The US Dollar Index (DXY) stabilized around 98 after four weeks of decline, signaling increased confidence in the government’s ability to avoid recession. This boost favors stock markets but tends to limit demand for cryptocurrencies as alternative financial hedges.
Bitcoin and Ether are often viewed as independent financial assets, but a stronger US dollar and high crypto market leverage amid economic uncertainties continue to exert downward pressure on prices.
Links: 15 December CNBC survey, Bridgewater Associates report, TradingView US Treasury data
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