Recently, the global cryptocurrency market has experienced significant volatility, especially on February 3, when mainstream cryptocurrencies like Bitcoin and Ethereum saw substantial declines. The reasons behind this round of plummeting are complex and varied, involving macroeconomic conditions, policy regulation, market sentiment, and other factors.

1. Global economic environment and the Federal Reserve's interest rate hike cycle

  • Rising expectations of Federal Reserve interest rate hikes: In the January monetary policy meeting, the Federal Reserve announced it would continue to raise interest rates and released hawkish signals, suggesting further tightening of monetary policy in the future. Market liquidity will therefore be restricted, putting direct pressure on high-risk assets (including cryptocurrencies).

  • Strengthening dollar: With increasing expectations of Federal Reserve interest rate hikes, the dollar index has continued to rise, leading to downward pressure on the prices of cryptocurrencies denominated in dollars.

2. Increasingly strict regulatory policies

  • Increased global regulatory scrutiny: Recently, major economies such as the United States, the EU, and China have become increasingly stringent in their regulatory attitudes towards the cryptocurrency sector. For example:

    • The U.S. Securities and Exchange Commission (SEC) has strengthened its scrutiny of cryptocurrency exchanges.

    • The EU plans to introduce a new regulatory framework for cryptocurrencies to limit their financial risks.

    • The Chinese government continues to crack down on cryptocurrency trading and strictly controls cross-border capital flows.

  • Market expectation impact: The uncertainty of regulatory policies has raised investor concerns about the future, leading to some capital withdrawal from the cryptocurrency market.

3. Institutional investor behavior

  • Increased selling pressure: Some large institutional investors began to significantly reduce their holdings in crypto assets to respond to liquidity needs or lock in profits. For example, some institutions concentrated on selling Bitcoin and Ethereum from late January to early February.

  • Capital flows to traditional finance: Affected by global economic uncertainty, some investors have moved their funds to safe-haven assets such as gold and bonds, further reducing their allocation to high-risk cryptocurrencies.

4. Macroeconomic factors

  • Inflation and geopolitical risks: Although cryptocurrencies are seen as an 'anti-inflation' asset, recent global inflation rates remain high, compounded by geopolitical risks such as the Russia-Ukraine conflict, leading to increased market risk aversion. Investors are more inclined to choose traditional safe-haven assets like gold.

  • Decreased market liquidity: After the Lunar New Year holiday, trading volumes in some Asian markets have declined, further exacerbating the price volatility of cryptocurrencies.

5. Characteristics of the cryptocurrency market itself

  • High volatility: Compared to traditional financial markets, the cryptocurrency market has higher volatility and speculation. Any negative news or policy changes can trigger panic selling by investors.

  • Market sentiment driven: Recently, there has been an increase in negative reports about cryptocurrencies on social media and news platforms, further exacerbating market pessimism.

6. Technical factors

  • Resistance and support levels: Mainstream cryptocurrencies like Bitcoin face strong technical resistance after experiencing rapid increases. The plunge on February 3 may be a market correction of the overvaluation.

  • Panic selling: As prices continue to fall, some investors have further amplified market declines due to forced liquidations or stop-loss actions in leveraged trading.

Summary

The plunge in digital currency on February 3 is the result of multiple factors working together:

  • The macroeconomic environment (such as the Federal Reserve's interest rate hikes and a strong dollar) has created fundamental pressure on the market.

  • The uncertainty of regulatory policies has raised investor concerns.

  • The behavior of institutional investors and market sentiment further amplified price fluctuations.
    In the future, the trends of the cryptocurrency market will still need to pay attention to the global macroeconomic environment, regulatory dynamics, and changes in market participants' sentiment.