Key Points
- The crypto market is experiencing a significant downturn, with a 56% drop in capital inflow over the past month.
- There are hopes that the upcoming Trump inauguration could potentially stimulate a crypto market recovery.
The cryptocurrency market is under substantial pressure, with Bitcoin and other cryptocurrencies experiencing a decrease of more than 1-5% in the last 24 hours. This significant sell-off is ongoing as capital inflows into the crypto market have plummeted by over 56% in the past month.
Ali Martinez, a well-known crypto analyst, reported a 56.7% drop in crypto investment activity over the past month, referencing data from blockchain analytics platform Glassnode. The inflows have decreased from $134 billion to a mere $58 billion.
Trading Volumes and Market Conditions
According to information provided by blockchain analytics platform Santiment, crypto trading volumes have decreased across various sectors including Layer 1 and Layer 2 networks, meme coins, and AI tokens. Trading volumes have now fallen to levels last seen on November 4, indicating a state of “trading paralysis” in the market. This paralysis is typically caused by increasing fear, uncertainty, and doubt (FUD) among investors. However, Santiment suggests that such market conditions often precede potential rebounds, as reduced excitement can pave the way for recovery.
Bitcoin price is currently facing strong selling pressure, dropping another 1.2% and falling below $93,000 levels. Glassnode’s short-term holder (STH) cost-basis model for Bitcoin is a crucial metric for assessing sentiment among new investors. This model has historically been key in identifying market lows during bull cycles and distinguishing between bull and bear markets.
At present, the Bitcoin price is trading around 7% above the STH cost basis of $88,135. Analysts warn that if Bitcoin stabilizes below this threshold, it could signal declining sentiment among short-term investors.
Impact of Trump’s Inauguration on the Crypto Market
Many are speculating on the potential “Trump effect” that could trigger a new crypto market rally. With Trump’s promises to make America a crypto hub and expectations of regulatory changes, market analysts are predicting significant gains.
However, the New York Digital Investment Group (NYDIG) suggests that Trump’s crypto promises may take some time to come to fruition. Greg Cipolaro, NYDIG’s global head of research, advised against expecting quick changes in cryptocurrency policy following Donald Trump’s inauguration on January 20.
In a research note dated January 10, Cipolaro acknowledged that the upcoming administration has sparked optimism about delivering on campaign promises. However, he stressed that “while some changes may occur swiftly, others could take time to materialize”. He further stated that key officials still need to be named and confirmed, and they need to assemble their staff once confirmed.
Other important crypto legislations, such as crypto rules for stablecoins and the bill to clarify the SEC’s regulatory role, could also take some time to be implemented.
