Crypto Sell-Off Accelerates with Deepening Economic Fears

Prices for Bitcoin and other major digital assets have continued to decline for three days in a row. The sell-off began on Tuesday when the largest cryptocurrency figuratively fell off a cliff, dropping below the US$100k mark and continuing its downtrend ever since.

Although January 7 saw the steepest decline in price since midday that day, it has now declined by over 8%, currently trading for US$92,823 (AU$149,671).

Inflation, Trump and Hayes

So, what caused the crash? Likely the worries around sticky inflation (read up on the latest Fed minutes here) and the overall gloomy economic outlook paired with uncertainty over global events.

Related: Oklahoma Legislation Proposed to Enable Bitcoin Salaries and Vendor Payments

There are also worries that the Trump-trade could be short lived if his policies – other than those pro-crypto policies the industry is hoping for – are negatively affecting the economy, i.e. by increased spending and more borrowing.

Elon Musk also raised some eyebrows over comments that his D.O.G.E. department might be so good at its job that it will have a negative flow-on effect on crypto prices.  

Adding to the concerns, BitMEX and Maelstrom founder Arthur Hayes has returned with his own predictions. Hayes believes we’ll see the market peak and crash around March:

Right on schedule, just like almost every other year, it will be time to sell in the late stages of the first quarter […] and wait for positive fiat liquidity conditions to re-emerge in the third quarter.

Arthur Hayes

Despite the setbacks, financial analysts remain bullish as institutional adoption gains momentum.

Can Institutional Adoption Counter Trend?

It’s the first birthday of the Spot Bitcoin exchange-traded funds (ETFs), governments are slowly but surely starting discussions around adding some “digital gold” to their national reserves and tokenisation is progressing beyond being just a buzzword.

Fidelity Digital Assets research analyst Matt Hogan recently reiterated how important the national strategic reserve narrative might become.

In a January 7 paper with the title “2025 Look Ahead”, Hogan said that they “anticipate more nation-states, central banks, sovereign wealth funds, and government treasuries will look to establish strategic positions”, in the largest crypto.

Related: Bhutan SAR Reveals Plans to Hold BTC, ETH and BNB in Strategic Reserve

Hogan added that not having any Bitcoin could backfire and turn out to be riskier than having at least some exposure.

That could be even more a problem if the United States starts with a Bitcoin reserve and others follow, openly or not.

It is likely that nation-states would begin accumulating in secret. No nation has an incentive to announce these plans, as doing so could influence more buyers and drive up the price.

Matt Hogan