- Bitcoin fell below $98,000, dropping 4.8% amid rising U.S. Treasury yields and inflation concerns, which pressured risk assets and caused related crypto stocks to tumble.
- Despite the decline, Bitcoin remains up 3% year-to-date, with optimism around regulatory clarity and potential market recovery.
Bitcoin, the leading cryptocurrency, saw a significant decline on Tuesday, dropping below the $98,000 mark as a surge in U.S. Treasury yields rattled risk asset markets. This slide reflects broader market turbulence, with cryptocurrencies and related stocks facing the heat.
The Market Reaction
The flagship cryptocurrency fell by 4.8% to $97,183.80, according to Coin Metrics, while the CoinDesk 20 index, which tracks the broader cryptocurrency market, shed over 5%. Stocks linked to the crypto sector also took a hit: Coinbase and MicroStrategy dropped by more than 7% and 9%, respectively. Bitcoin miners such as Mara Holdings and Core Scientific were down about 5% each.
The 10-year U.S. Treasury yield surged following data from the Institute for Supply Management, which revealed unexpected growth in the U.S. services sector in December. This fueled concerns about persistent inflation, a factor that typically pressures growth-oriented assets like cryptocurrencies.
What’s Behind Bitcoin’s Dip?
Bitcoin’s recent tumble comes after it traded above $102,000 just a day earlier. The spike in Treasury yields has intensified fears of a prolonged period of tighter monetary policy, a scenario that usually dampens appetite for high-risk investments.
The Federal Reserve’s cautious stance adds to the uncertainty. Although the central bank has cut interest rates three times recently, it signaled in December that further rate cuts in 2025 might be fewer than expected. Historically, Bitcoin has shown a tendency to rise with rate cuts and falter during rate hikes.
Outlook for Bitcoin and the Crypto Market
Despite the recent setback, Bitcoin is up over 3% year-to-date and recorded an impressive 120% gain in 2024. Many investors remain optimistic about its potential to rebound, with some predicting it could double in value by the end of the year. The hope is that clearer regulatory frameworks will stabilize digital asset markets, benefiting companies like Coinbase and Robinhood.
However, the road ahead may not be smooth. Inflation concerns, interest rate uncertainties, and market volatility could pose challenges. Investors will closely watch economic data and central bank signals to gauge the trajectory of Bitcoin and other cryptocurrencies in 2025.
For now, Bitcoin’s drop below $98,000 highlights the sensitivity of risk assets to macroeconomic shifts, reminding investors of the importance of staying vigilant in an ever-evolving financial landscape.
