Why Bitcoin and Altcoins Are Falling: Key Factors Behind the Crypto Slump
The cryptocurrency market has experienced a sharp downturn this week, with Bitcoin (BTC) and numerous altcoins seeing significant losses. Despite Donald Trump’s inauguration as the most crypto-friendly U.S. president, Bitcoin’s price dropped to $101,000 on January 23, while several altcoins, including meme coins like ai16z, Fartcoin, and Official Trump, fell by over 20%. Other laggards included Lido DAO, Jupiter, Virtuals Protocol, and Hyperliquid. Analysts point to four key reasons for this retreat.
1. Potential Bank of Japan Interest Rate Hike
The Bank of Japan (BoJ) is widely expected to hike interest rates by 0.25% on Friday, bringing the official cash rate to 0.50%, the highest level since 2008. Historically, BoJ rate hikes have had a ripple effect on global markets. The last hike, in August 2024, caused cryptocurrencies and other assets to decline sharply due to the unwinding of the Japanese yen carry trade. A similar move this week could trigger another market downturn, though it may be less severe.
Related: How the Yen Carry Trade Led to a Global Market Rout?
2. Federal Reserve Decision Looms
Traders are also eyeing next week’s Federal Reserve interest rate decision. A hawkish tone from the Fed could lead to further weakness in the cryptocurrency market as higher rates would push government bond yields higher, making riskier assets like Bitcoin less attractive. The anticipation of the Fed’s decision has added uncertainty and downward pressure to the market.
3. Trump’s Silence on Cryptocurrency
Donald Trump’s lack of public support or executive action on cryptocurrency since his inauguration has dampened investor optimism. Expectations of Trump establishing a strategic Bitcoin reserve have dwindled to just 40% on Polymarket, a significant drop from earlier predictions. Many traders who bought crypto in anticipation of pro-Bitcoin policies appear to have sold off their holdings following this silence, further contributing to the market’s decline.
4. Profit-Taking After Major Events
The market is also feeling the effects of a “buy the rumor, sell the news” strategy, a common phenomenon where investors purchase assets ahead of major events and sell immediately after. With Trump’s inauguration in the rearview mirror and no immediate crypto-related policy announcements, many traders have exited their positions.
The Risk of a Bitcoin Double Top
Adding to the bearish sentiment is Bitcoin’s formation of a double-top chart pattern at $108,100, a classic reversal indicator. This pattern consists of two peaks and a neckline, which in this case sits at $89,305. If Bitcoin continues to decline, the potential target for the cryptocurrency could drop as low as $74,000.
On the other hand, a move above the double-top point at $108,100 would invalidate this bearish outlook, potentially paving the way for gains toward the psychological $110,000 level.
The Bigger Picture
Bitcoin’s current decline reflects broader market conditions influenced by global monetary policy, investor sentiment, and technical chart patterns. While the cryptocurrency’s long-term prospects remain compelling for many, short-term volatility continues to dominate. Investors and traders should closely monitor upcoming central bank decisions and political developments that could shape the next phase of the market.
Disclaimer: This article is for informational purposes only and does not constitute financial advice.
