The cryptocurrency market experienced a correction on December 21, 2024, which can be viewed from the following aspects:
Macroeconomic Factors
The global macroeconomic situation has a significant impact, with economic growth slowing and inflationary pressures still present. The previous interest rate hikes by central banks have tightened market liquidity, causing investors to prefer holding bonds, gold, and other stable traditional financial products, resulting in capital flowing out of the cryptocurrency market and reducing investment demand for cryptocurrencies. The Federal Reserve's monetary policy also significantly affects cryptocurrencies such as Bitcoin; when it announced a 25 basis point rate cut, Powell stated there was no intention to modify relevant laws and that the pace of rate cuts might slow in 2025, leading to changes in market expectations for cryptocurrencies, reducing investors' risk appetite, and consequently selling off cryptocurrencies, resulting in price declines.
Regulatory Policy Factors
The attitude and policies of governments and regulatory agencies towards cryptocurrencies have always been key factors influencing their prices. In recent years, from China's comprehensive ban on virtual currency trading to the United States strengthening discussions on stablecoin regulation, and the European Central Bank calling for the establishment of a globally unified cryptocurrency regulatory framework, a series of tightening and uncertainties in regulatory policies have made investors worry about facing stricter regulatory restrictions or even being banned from trading in the future, leading them to sell off their cryptocurrencies to avoid potential losses.
Market Sentiment Factors
In the cryptocurrency market, market sentiment significantly impacts prices. When prices show a downward trend, investors' panic easily spreads, forming a 'herd effect.' The sharp decline in cryptocurrency prices has triggered panic selling among investors, further exacerbating the extent of the price drop, causing market supply to exceed demand.
Industry-Specific Factors
The cryptocurrency sector itself has many issues that negatively impact its price. Firstly, security incidents at exchanges are frequent, with some well-known cryptocurrency exchanges revealing financial difficulties and suspending withdrawals, which severely undermines market confidence. Users worry about the safety of their funds and choose to sell their cryptocurrencies. Secondly, some cryptocurrency projects face technical bottlenecks, such as challenges in blockchain technology regarding scalability and energy efficiency, which restrict large-scale adoption and popularity of cryptocurrencies and affect their long-term value. Additionally, the market bubble burst is also one of the reasons for this sharp decline. Over the past few years, the cryptocurrency market has experienced excessive speculation, with some projects being overvalued. As the market returns to rationality, investors begin to reassess the actual value of projects, leading to significant price adjustments for many projects lacking fundamental support, triggering a chain reaction that drives prices down across the entire cryptocurrency market.
