Recently, investors have become discouraged on the market and claim that a bear market has begun. What exactly brought the Bitcoin price down a few floors?
Bitcoin price dropped
The Bitcoin price has defended the level of USD 100,000, but we are still a solid percentage away from ATH.
What exactly happened? Is this the beginning of a bear market? Many people on the market probably do not understand what exactly happened, they try to apply almost magical rules: a certain time had passed since the halving, so the BTC rate had to drop and a bear market had to start. They completely ignore the fact that even the previous boom ended when the Fed ended its quantitative easing and returned to raising interest rates.
Liquidity matters
Liquidity is key, and this has now been reduced by the US government shutdown. The balance of the US treasury, the Treasury General Account (TGA), is growing, but the money cannot be spent by the government because it is suspended by an impasse in Congress.
As if that were not enough, quantitative tightening is still ongoing, which further reduces liquidity. This will end, but only on December 1st. All this does not make us optimistic. And hence the sell-offs in the over-leveraged cryptocurrency market. But does this mean a bear market? At this stage, not yet, especially since bitcoin has not broken levels that would suggest entering a bear market.
What will happen soon? First of all, the shutdown must end. In practice, it means cutting off American officials and some military members from their payments. It is difficult to imagine a scenario in which they will endure this state of affairs for longer than two months, hence the conclusion that a breakthrough will occur soon.
Republicans have already received a punch in the nose from voters – they lost, among others, New York, where the local elections were won by a leftist candidate.
Assuming that the shutdown ends soon, USD 250-350 billion will flow out of the US treasury. This will happen within a few months. As of December 1, as announced by the Fed, quantitative tightening will end. The U.S. government will likely issue more Treasury bills. There will be a strong increase in liquidity, which will hit the US dollar exchange rate, thus strengthening BTC and leading altcoins.
The second year of Donald Trump’s term of office will also begin and he can no longer pursue such an aggressive policy, as congressional by-elections are approaching. Moreover, he must think about his successor – most likely JD Vance – winning the presidential election in three years. This means, among others: less confusion with customs duties, which are controversial in the USA. Recently, Trump managed to reach a temporary agreement with China on this matter.
Further reductions in interest rates are also ahead. Moreover, the current market differs from previous cycles in that there are more institutional investors and fewer “street” investors.
All this leads to the conclusion that the boom did not have to end at all and will be driven by macroeconomic factors.
