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The reasons for the recent sharp decline in the cryptocurrency market are multifaceted.

On the macroeconomic level, the latest economic data from the United States has performed poorly, with accelerating service sector inflation. The ISM Non-Manufacturing PMI surged from 52.1 to 54.1, the price index hit an 11-month high, and the number of job vacancies in November unexpectedly surged by 259,000, reaching 8.098 million. Inflationary pressures remain high, which undermines the previously expected interest rate cuts. The market anticipates that the Federal Reserve will almost certainly not cut rates in January, increasing investor concerns about the economic outlook, raising risk aversion, and leading more funds to flow into safe-haven assets like the US dollar, with cryptocurrencies as risk assets being the first to suffer.

In terms of regulatory policies, there are concerns in the market about the US Department of Justice potentially selling 69,370 bitcoins seized from the illegal dark web market “Silk Road.” Although some analyses suggest that this concern may be exaggerated, it still delivers a certain blow to market confidence.

From the perspective of institutional dynamics, data from Arkham Intelligence shows that large institutions like Jump Crypto have recently dumped hundreds of millions of dollars in crypto assets. The large holdings by institutions and their concentrated sell-offs can easily trigger a chain reaction in the market and may also transmit pessimistic signals, further amplifying retail investors' panic.

In terms of market sentiment, the Crypto Fear & Greed Index indicates “Fear,” with investors lacking confidence in the market outlook and generally choosing to avoid risks. Additionally, the risk aversion in traditional markets like US stocks also exerts a negative spillover effect on the crypto market.

Furthermore, profit-taking by some investors and outflows of market funds are also factors contributing to the decline in the cryptocurrency market.