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Yesterday, Tuesday, January 7, 2025, a small crypto crash occurred.
Despite being unexpected for many, there were already some signals that suggested a bull outcome.
To identify the causes, however, one must start the analysis from afar.
Summary
The Turning Point of November
To analyze the general trend of the crypto market, it is useful to use on one hand the price trend of Bitcoin, and on the other hand the altcoin season index of CoinMarketCap.
Until October 2024, the price of Bitcoin had never risen above $75,000 in its entire history.
With Trump’s victory in the USA presidential elections, there was a turning point: not only did it surpass $75,000, but it also went on to surpass $90,000 with momentum.
In the meantime, particularly just before the end of November, the altcoins also awakened, with the altseason index first rising above the 50 mark, and then even above the 80 mark, although only for a few days.
At that point, two things happened almost simultaneously that changed things a bit.
The Turning Point of December
In fact, in December, while on one hand Bitcoin was rising even above the 100,000$ mark, reaching new all-time highs even above 108,000$, the altseason index returned around the 50 mark, but from there it did not move anymore.
So for Bitcoin, the phases of this bullrun have been two, while for altcoins as a whole, there has been only one, moreover brief.
But the real turning point in December came on Wednesday the 18th, when in light of the Fed’s interest rate cut strategy rescheduling, something changed.
The fact is that suddenly the scenario, which previously seemed decidedly positive, has become decidedly less positive, precisely because lower interest rate cuts in 2025 also inevitably mean less liquidity in the bull and bear markets.
The mini-bubble and the first crypto crash
At that point, there was the first crash, which brought the price of Bitcoin below $93,000.
It should be remembered that after the mini-altseason of late November/early December, altcoins as a whole have no longer been the protagonists of the crypto markets, but have merely followed Bitcoin with few exceptions.
There were fears that this could be the burst of a mini-bubble, but instead, two days ago, on Monday, January 6, 2025, the price of BTC had returned well above $100,000.
However, yesterday there was a second crash, which wiped out all the gains of the last few days, bringing it back below $96,000.
Now the risk of a mini-bubble bursting seems even greater than was feared at the end of December.
The causes of the crypto market crash
The primary cause of this crash is certainly the possible burst of a mini-bubble.
However, it must be said that not many analysts claim that November and December were a true mini-bubble.
It is necessary to specify that mini-bubbles are not true speculative bubbles, both because they last very little and because they have no significant impact on the medium to long-term trend.
But there’s more.
One of the key factors that characterized the trend of the markets yesterday, also highlighted by the poor performance of the USA stock exchanges, is the drainage of capital by the USA bonds. In other words, there was a flight of capital from risk-on assets to government bonds.
The thing had been somehow announced the day before by an increase in the MOVE index (U.S. Bond Market Option Volatility Estimate).
The other factor that has negatively impacted the crypto market, currently dominated by Bitcoin, is the Dollar Index, still decidedly very high, and even on the rise.
The global scenario
In reality, it is precisely the macro scenario that is not particularly favorable to risk-on assets these days.
The rush to grab dollars speaks volumes about what the markets seem to expect: a drop in prices.
Generally, one “goes into dollars” only for limited periods of time, essentially waiting to buy back. The large purchases of dollars in recent weeks seem to suggest that the markets are waiting for a big price drop to be able to buy in a much more convenient way.
The same thing could also apply to the crypto markets, although here more than a retracement, in some cases a true and proper collapse might also be expected.
It is worth noting, however, that this hypothesis does foresee a drop, but followed by a rebound, and not a long collapse, otherwise the markets would not have temporarily taken refuge in dollars, but in long-term risk-off assets like gold.
Of course, the success of the USA bonds can also lead to thinking about worse scenarios, given that these days they have excellent yields and can be comfortably held in a portfolio even for years, but the records of the Dollar Index make the needle of the balance point more towards the medium/short-term scenario.