Nearly $1.25 billion has been liquidated from the cryptocurrency market over the past 24 hours, as the market dropped nearly 10%.
Bitcoin price fell below $96K, while Meme Coins suffered the biggest losses on Thursday.
Inflation Forecast Causes Major Correction in Cryptocurrency Markets
According to data from Coinglass, Bitcoin saw over $45 million liquidated today, while Ethereum saw nearly $30 million. This major correction happened after the Federal Reserve cut interest rates by 25 basis points on Wednesday. Typically, interest rate cuts are positive for cryptocurrencies, as interest rates are lower signaling softer monetary policy. However, what influenced the markets was the Fed’s forecast for 2025. Jerome Powell said that the Federal Reserve predicted higher inflation and only cut interest rates twice next year.
While this level of liquidation is significant, the impact on the stock market is even more severe. Nearly $1.5 trillion has been removed from US markets. These aggressive liquidations are fueling fears of a down cycle.
“Hey everyone, now that the bull market is officially over, I just want to say a big thank you to everyone. I will delete all crypto-related social accounts and offline,” said one influencer posted on X (formerly Twitter)
However, the general view of most analysts seems to indicate that today’s disposal is only a short-term removal.
“Bitcoin Market Sentiment. It’s a familiar story every time, and it never changes. The market is not designed for the majority to win. Corrections are a natural part of a bull market,” write famous analyst ‘Titan of Crypto’.
Other analysts, such as Philakoneemphasized that these liquidations typically take place at the end of a bull year as the market enters a cooling period. He also predicts that bullish sentiment will return after February 17 and last until the first week of January. Meanwhile, some analysts predict an altcoin season. Increased liquidation for Bitcoin will impact its dominance in the coming months and create more opportunities for major altcoins such as Ethereum and Solana.
“If you think altcoin season is over, you need to know this: Total altcoin market capitalization (excluding BTC & ETH) is around $1.05 trillion. It is touching the previous high of the altcoin market cap from November 2021. The last time something similar happened was in February 2021, when this altcoin market cap tested the previous high from January 2018,” write Lark Davis.
While the Fed’s forecast had a notable impact on today’s markets, it’s important to understand that Bitcoin is still up nearly 130% this year. Most importantly, several developments in the cryptocurrency industry outweigh these macroeconomic factors.
Michael Saylor’s MicroStrategy, which owns nearly 2% of Bitcoin’s supply, has been making purchases since October. The company even bought $3 billion worth of BTC in October 2, when the asset was hovering above $100K.
Furthermore, other public companies such as MARA and Riot Platforms have also implemented similar Bitcoin buying strategies this month. There are also likely to be notable regulatory changes in the future. Global lawmakers in various countries are advocating for maintaining Bitcoin reserves. So, while macroeconomic factors have sparked temporary bearish signals, the long-term outlook for 2025 remains positive.
Supply Deflation Signals Possible Bitcoin Supply Shock
Another reason why we think Bitcoin will continue to maintain its uptrend is its supply and demand ratio.
According to data from CryptoQuantthe Bitcoin market is showing signs of a possible supply shock as increased demand meets decreased BTC supply. Demand for Bitcoin is increasing, with addresses accumulating an additional 495K Bitcoin monthly.
Meanwhile, the stablecoin market capitalization has reached $200 billion, marking new liquidity. Optimism surrounding pro-cryptocurrency policies and potential US initiatives continues to increase demand.
In contrast, sell-side liquidity dropped to 3.397 million Bitcoin, the lowest since 2020, including exchanges, miners and OTC trading desks. The inventory ratio, which measures how long supply can currently meet demand, fell to 6.6 months from 41 months in October, underscoring tightening market conditions.
So this supply shock, along with macroeconomic factors, could be the main factor behind today’s liquidations.