Macroeconomic Factors Pose a Threat to Crypto Traders as Tightening Liquidity Looms

Bitcoin, the largest crypto by market cap, has recorded significant gains since the United States elections, leading to bullish projections this year. However, recent price corrections and liquidity concerns could spell a short-term sting for the crypto market.

Macroeconomic factors are posing a threat to crypto traders as tightening liquidity could lead to a short-term setback in the market.

Recently, the crypto market experienced a 6.41% decline, with liquidations amounting to billions of dollars. This occurred as funds flowed into other financial assets, such as stocks, due to gains and trader repositioning. Bitcoin's price faced a direct impact, wiping out weekly gains and showing a decline of over 5% within 24 hours.

Crypto analysts from Matrixport are highlighting the potential effects of a global shift in liquidity on Bitcoin and other crypto assets, especially in light of Trump's second term and the strengthening dollar, which has tightened denominated liquidity, according to traders.

Matrixport analysts are observing the short-term headwinds emerging as liquidity shifts, which could influence BTC price movements within a 13-week range. This period coincides with anticipated price upticks, and events played out positively in Q4 2024, presenting a window for caution and less favorable indicators for bulls.

A key concern is the sharp decline in altcoins, which were tipped for a bull peak in January, with total values down by 10%, indicating that crypto traders will slowly move out of the red zone. Matrixport adds that previous metrics showed less favorable liquidity indicators.

“However, we anticipate this consolidation to be temporary, as the broader outlook for risk assets, particularly Bitcoin remains constructive. That said, traders may exercise greater caution when liquidity indicators are less favorable as these metrics have proven to be reliable leading indicators in the past.”

Despite the recent liquidity squeeze, crypto traders are still set for a bullish 2025, according to U.S. macro factors, which could lead to new inflows, given the anticipated regulatory ease in the country.

Moreover, Donald Trump expressed support for Bitcoin and other assets, reiterating plans to make the U.S. a global leader in the crypto space. Most crypto commentators pegged a yearly bull price range between $150K to $200K on the back of institutional demand.

The approval of Bitcoin ETFs and a shift in traditional finance exposure propelled crypto markets to new highs, with similar growth patterns expected this year.