Bitcoin's V-Shaped Reversal: Macroeconomic Expectations and Policy Uncertainty Take Center Stage After $800 Million Liquidation

Bitcoin's V-Shaped Reversal: Macroeconomic Expectations and Policy Uncertainty Take Center Stage After $800 Million LiquidationIn the early hours of January 14th, Bitcoin staged a dramatic V-shaped reversal. The price plummeted below $90,000, hitting a low of $88,909, its lowest point in nearly two months

Bitcoin's V-Shaped Reversal: Macroeconomic Expectations and Policy Uncertainty Take Center Stage After $800 Million Liquidation

In the early hours of January 14th, Bitcoin staged a dramatic V-shaped reversal. The price plummeted below $90,000, hitting a low of $88,909, its lowest point in nearly two months. However, it swiftly rebounded, surging above $95,000 a gain of over $6,000. At press time, Bitcoin was trading around $94,894.3, representing a 0.75% increase over the past 24 hours. This intense price volatility resulted in significant losses for many investors. Coinglass data revealed that nearly 270,000 traders were liquidated in the past 24 hours, with total losses reaching $800 million.

Wang Peng, an associate researcher at the Beijing Academy of Social Sciences, noted, "The Bitcoin market is highly speculative and volatile, characterized by dramatic price swings. Investors need to fully understand the inherent risks." He further elaborated on the factors driving the price fluctuations.

The recent Bitcoin price correction is widely attributed to expectations surrounding the US macroeconomic outlook. James Butterfill, Head of Research at CoinShares, believes that the post-election honeymoon period is over, and macroeconomic data has once again become a key driver of asset prices. Frank Chaparro, Head of Special Projects at The Block, points out that with the introduction of Bitcoin spot ETFs, traditional market forces are increasingly dominating cryptocurrency price movements. The release of US employment data on January 12th showed a strong correlation between the crypto market and the Nasdaq index, highlighting the profound impact of macroeconomic conditions.

However, it's noteworthy that Bitcoin ETFs, after experiencing a peak in capital inflows at the end of 2024, witnessed outflows at the beginning of this year. Data from TraderT shows that on January 13th, US spot Bitcoin ETFs saw net outflows of $284 million, while US spot Ethereum ETFs experienced net outflows of $39.52 million. A report released by Bitfinex also indicated that Bitcoin continued its decline on January 13th, with heightened market caution driven primarily by soaring US Treasury yields and persistent outflows from spot Bitcoin ETFs. Over the past 12 trading days, ETFs experienced outflows on 7 days, with a total outflow of $718 million in just two days a stark contrast to the nearly $2 billion in inflows previously observed.

The Federal Reserve's hinted reduction in rate cuts and tightening of financial conditions are also considered contributing factors to Bitcoin's short-term volatility. The Bitfinex report notes that while President-elect Donald Trump's administration might introduce crypto-friendly regulatory policies, potentially limiting deeper declines and maintaining Bitcoin's long-term strength, short-term volatility remains unavoidable. Following a stronger-than-expected employment report, Stephen Juneau, an economist at Bank of America, revised his outlook on the Fed, no longer anticipating further rate cuts and citing above-target inflation, upward risks, robust economic activity, and a seemingly stabilized labor market.

Wang Peng believes, "The tightening of rate cut expectations could negatively impact Bitcoin." Rate cuts typically increase market liquidity, potentially diverting funds into high-risk, high-return assets like Bitcoin, thus pushing prices higher. However, the tightening of rate cut expectations could reduce this liquidity, putting pressure on Bitcoin prices. Furthermore, this tightening could also affect market sentiment, leading to decreased investor confidence and further exacerbating price volatility. Zhi Pei Yuan, Vice Chairman of the Investment Committee for Listed Companies at the China Investment Association, similarly stated that tighter rate cut expectations usually exert downward pressure on Bitcoin prices. When the market anticipates tighter rate cuts, it suggests potential interest rate increases, making traditional financial markets more attractive and prompting capital flight from the higher-risk Bitcoin market to traditional sectors, thus reducing Bitcoin demand and lowering prices.

The market is currently in a wait-and-see mode, anticipating whether the Trump administration will issue any cryptocurrency-related policies upon taking office. Some industry insiders believe that policy clarity could lead to another Bitcoin surge. A report released by Matrixport on January 14th indicated that due to the persistently low activity of fiat inflows into stablecoins, Bitcoin and other cryptocurrencies may continue to consolidate. The resurgence of stablecoin inflows, a key indicator of market demand changes, has yet to materialize.

Since 2025, Bitcoin, as part of the "Trump trade," has been gradually losing momentum. Zhi Pei Yuan attributes this to a rational market correction after excessive anticipation. Bitcoin's performance as part of the "Trump trade" is subject to several constraints. If the "Trump trade" further cools down, market risk appetite decreases, and capital flees risk assets, Bitcoin prices may face pressure. However, if political and economic uncertainty intensifies, Bitcoin's safe-haven attributes might resurface, attracting capital inflows and supporting its price. Overall, Bitcoin's future trajectory is uncertain, and price volatility is likely to persist.

Jiang Han, a senior researcher at the Pangoal Institution, reminds investors to remain cautious, closely monitor market dynamics and policy changes, and make sound investment decisions.

Despite heightened market volatility, institutional enthusiasm remains strong. On the evening of January 13th, MicroStrategy, a "Bitcoin hoarding champion," announced another Bitcoin purchase, marking its tenth consecutive week of accumulation. Between January 6th and 12th, the company acquired 2,530 Bitcoins for $243 million, at an average price of $95,972 per coin, increasing its total Bitcoin holdings to 450,000. On January 14th, Hong Kong-listed company Ming Cheng Group announced that its wholly-owned Hong Kong subsidiary, LeadBenefit, purchased 500 Bitcoins on January 9th at an average price of $94,375 per coin, for a total investment of approximately $47 million. The company stated that it intends to use its idle funds to purchase Bitcoin as a short-term investment. Additionally, Japanese listed company Remixpoint also announced on January 14th that it had increased its Bitcoin holdings by 33.34 coins.

Cointelegraph analysts caution investors to consider risks associated with slowing global economic growth, as economic uncertainty is prompting investors to shift towards cash positions. They point out that regardless of Trump's actions, the US fiscal outlook for 2025 remains challenging. With limited policy flexibility to avoid stimulating inflation, the risk of recession persists and could suppress short-term investor demand for Bitcoin.