Is the Trump Trade Cooling Off? Bitcoin Suffers First Weekly Decline Post-Election as Market Sentiment Turns Cautious

Is the Trump Trade Cooling Off? Bitcoin Suffers First Weekly Decline Post-Election as Market Sentiment Turns CautiousSince Donald Trump's victory in the US presidential election, Bitcoin had been on an upward trajectory. However, this bullish momentum appears to have abruptly stalled

Is the Trump Trade Cooling Off? Bitcoin Suffers First Weekly Decline Post-Election as Market Sentiment Turns Cautious

Since Donald Trump's victory in the US presidential election, Bitcoin had been on an upward trajectory. However, this bullish momentum appears to have abruptly stalled. Bitcoin is experiencing its first weekly decline since the election, marking a significant shift in market sentiment. As of last Sunday, Bitcoin's price dropped over 7%, its largest weekly fall since September. This exceeded expectations and impacted the broader cryptocurrency market, with other major cryptocurrencies like Ethereum and Dogecoin falling by approximately 10%.

Bitcoin is currently trading around $95,000, approximately $13,000 below its all-time high reached on December 17th. This indicates a weakening of the strong growth momentum seen in the Bitcoin market since the US presidential election on November 5th. During this period, Bitcoin's price surged over 40%, largely driven by market expectations surrounding Trump administration policies. Many investors believed a Trump administration might adopt crypto-friendly regulations, potentially even establishing a national Bitcoin reserve, fueling a speculative frenzy that propelled Bitcoin's price higher.

However, the recent shift in Federal Reserve policy seems to have dampened this optimism. Last Wednesday, the Fed cut interest rates for the third time, but simultaneously signaled a slower pace of monetary easing next year to combat rising inflationary pressures. This move triggered a significant sell-off in global equities and had a clear negative impact on the cryptocurrency market. This "hawkish" turn by the Fed contrasts sharply with market expectations of loose monetary policy under a Trump administration, undoubtedly undermining investor confidence.

A Bloomberg report on Monday highlighted that the Fed's cautious policy outlook dampened optimism in the cryptocurrency market. This reflects the sensitivity of market participants to shifts in the macroeconomic environment. In investors' eyes, the Fed's policy shift appears to have eroded the expectations that previously supported Bitcoin's price surge, triggering a market correction.

David Lawant, Head of Research at cryptocurrency brokerage FalconX, noted in a report that despite the significant short-term price volatility, a "bullish outlook" for Bitcoin remains "the most likely scenario" by Q1 2025. However, he also cautioned investors about potential risks.

Low liquidity conditions could exacerbate market volatility. Of particular concern is the largest-ever options expiry event in the cryptocurrency market on December 27th. This will significantly impact market liquidity and could lead to dramatic price swings. This poses a considerable challenge for investors using leveraged trading. Options expiry typically brings significant sell-off pressure, potentially further intensifying Bitcoin's decline.

Therefore, Bitcoin's recent drop is not merely a technical correction but reflects a changing market sentiment. Expectations of favorable policies under the Trump administration, and the market optimism fueled by previous loose monetary policy, have both diminished. The Fed's policy shift and the upcoming options expiry event introduce new uncertainties into the Bitcoin market.

While Lawant predicts a positive long-term outlook for Bitcoin, increased short-term volatility warrants caution. Amidst heightened macroeconomic uncertainty, Bitcoin's future price trajectory will be influenced by various factors, including the Fed's monetary policy, global economic growth prospects, and regulatory policies. Investors need to closely monitor these factors and adjust their investment strategies accordingly. Risk assessment and prudent position management are crucial for effective investment in the current market environment. After a substantial price increase, a market correction is normal, but investors should be prepared for potentially greater volatility ahead. Cautious investment is key to navigating the turbulent cryptocurrency market. Currently, market sentiment has retreated from the optimistic expectations fueled by the "Trump trade," and future price movements remain uncertain.