The crypto market faced a significant downturn on January 8, 2025, with its total market capitalization dropping by around 6.3% to approximately $3.35 trillion. This sharp decline followed strong US economic data reports that raised concerns about potential interest rate hikes. The crypto market further weakened when the leading cryptocurrency traded below the $100,000 mark.
The price of Bitcoin plunged 6.35% to $89,279 earlier today after surging to highs of $95,724. The sudden reversal in price triggered a panic among crypto investors and caused an overall sell-off in the market.
Some of the top cryptocurrencies with notable price declines were Ethereum, DOGE, and Solana. For example, Ether was down 10%, Solana dropped 10%, and Dogecoin plummeted by 12%.
Bitcoin’s Price Drives the Broader Crypto Market
As the major cryptocurrency, Bitcoin generally dictates the broader market’s trend. The unexpected correction in BTC’s price resulted from two US economic reports.
The reports indicated that the US economy was doing better than expected, raising concerns that the Federal Reserve may increase its interest rates due to inflation. Bitcoin’s price plummeted from its near $100,000 price, triggering massive liquidations in leveraged positions.
The first correction erased almost $631 million in longs in the derivatives market, marking the year’s first big wipe-out. The long liquidation suggests that many traders were over-leveraged, betting on the continuity of the crypto bull run.
Strong US Economic Data Fuels Risk-Off Sentiment
Solid economic growth and job gains hinted at the US economy’s continued strong recovery, adding to fears of longer periods of high interest rates. Hence, the US Fed might increase borrowing costs and drain liquidity, negatively affecting riskier assets like cryptocurrencies.
This economic data triggered risk-off sentiment and wasn’t only in the crypto market. The same situation unfolded in US equities: the S&P 500 and the Nasdaq Composite slumped massively.
The S&P 500 was down 1.1%, with the Nasdaq Composite sliding by 375 points. The Dow Jones also experienced a second consecutive day of loss by sliding 0.61% in close trading.
According to the CME FedWatch tool, market participants see a 95% chance of steady interest rates, up from 90.4% a week ago. This change in sentiment reflected investor fears that the Fed may delay rate cuts.
Beyond the fundamental factors, technical indicators also confirm the recent downturn in the crypto market, with the relative strength index showing a bearish divergence. If this sell-side pressure continues to increase, the crypto market could continue spiraling down towards the $3.18 trillion mark.
Binance Research Highlights Key Crypto Market Performance
Meanwhile, a Binance Research for December 2024 offered key insights regarding the general crypto market performance. The report predicted that Bitcoin would surge strongly in 2024, hitting an all-time high of $108,000.
This price will be driven by institutions, spot ETF approval, and an ongoing trend among major companies to accumulate digital assets. The rise further follows speculations that the US might start recognizing Bitcoin as a strategic reserve, further cementing its status as a store of value.
The report also noted Ethereum’s continued growth, driven by innovations in DeFi and the broader adoption of this blockchain for various use cases. Furthermore, this Research indicated that AI-powered crypto projects will continue to grow in popularity.
AI plays a substantial role in market analysis, trading strategies, and decentralized governance. By combining AI and blockchain, there would be new frontiers of innovation, including several multi-billion-dollar-valued AI crypto startups.
Meanwhile, the NFT market keeps evolving even as it shows signs of cooling in some respects. Ethereum-based NFT trade volumes exceeded $888.2 million in December 2024, even though the trading of classic collections such as CryptoPunks and Bored Ape Yacht Club has slowed down.
Solana and Binance Smart Chain are among the blockchain platforms where NFT volumes have declined significantly. However, new projects and tokens, such as Pudgy Penguins, recorded significant growth, indicating that the NFT space remains dynamic.
