Why are Bitcoin and Altcoins going down? Here are all the reasons in depth!

The world's largest digital currency, Bitcoin, has fallen below $95,000, extending its decline as the overall crypto markets experience heavy losses.

At the time of writing, Bitcoin is trading at $94,771, with many altcoins down 20-30%. The market turmoil comes after unexpectedly strong economic data from the US, which has raised concerns about a prolonged period of high interest rates.

The decline was fueled by the release of strong US labor and economic confidence indicators, including:

• JOLTS job postings: 8.1 million (over 7.7 million expected).
• Services PMI: 54.1 (better than expected 53.3).
• ISM service prices: 64.4 (well above expectations of 57.5).

While positive economic data is usually good for traditional markets, it often has the opposite effect on riskier assets such as Bitcoin and altcoins. A strong labor market and rising confidence in economic activity suggest the Fed may delay rate cuts, a situation that has dampened interest in cryptocurrencies.

The crypto market was set for weaker economic data that could have supported a more hawkish Fed stance. Instead, unexpected strength in the labor market has “given the Fed two reasons to keep interest rates high,” as analysts put it:

• Stable Labor Market: Higher income levels increase consumer spending, which can cause inflation.
• Service Sector Prices: The sharp rise in service prices reinforces inflationary pressures.

With inflation still a concern, markets expect fewer rate cuts in 2024. As a result, yields on US Treasury bonds have risen, a development that has often weighed on Bitcoin given its sensitivity to tighter monetary policy.

Adding to the pressure, retail interest in cryptocurrencies has also decreased. Google search trends show a sharp decline in interest in Bitcoins and altcoins from their highs in December. Retail investment volume, a key driver of previous bull markets, has also decreased significantly in recent weeks, with purchases below $10,000 falling.

Bitcoin's failure to hold above $100,000 led to additional selling pressure, with long-term holders dumping large amounts of Bitcoin at these levels, recalling the $70,000 selloff in March 2024.

The US Dollar Index (DXY) continues its strong run, weighing on Bitcoin. A strong dollar reduces the appeal of riskier assets such as cryptocurrencies. However, some analysts predict a possible decline in the strength of the dollar in the coming months, which could relieve Bitcoin and altcoins.

While it is not unusual for institutional investors to sell at the end of the year for a profit, several key events in January can affect market volatility:

• Today: FOMC meeting minutes.
• Friday: US nonfarm payrolls report.
• January 15: US inflation data for 2024.
• January 24: Bank of Japan interest rate decision.
• January 29: FED interest rate decision.

* This is not investment advice.