Dogecoin (DOGE) saw the largest losses among major cryptocurrencies on Tuesday, dropping by 10% as Bitcoin (BTC) fell below the $96,000 mark. This downturn was triggered by a series of stronger-than-expected U.S. economic reports that led to a sharp increase in Treasury yields, putting pressure on risk assets, including digital currencies. Solana (SOL), Cardano (ADA), Binance Coin (BNB), and Ether (ETH) also suffered significant declines, each losing between 7% and 9%. Bitcoin itself dropped 5.5%, while the broader CoinDesk 20 index, which tracks the largest cryptocurrencies by market cap, declined by 7.1%.
The sell-off led to a substantial $560 million in long positions being liquidated in the futures market, marking a notable start to the year. Liquidations occur when traders are unable to meet margin requirements, forcing them to sell their leveraged positions. This created a cycle where falling prices triggered more forced sales, amplifying the downturn.
The economic data that spurred this movement included a stronger-than-expected report from the Institute for Supply Management (ISM), which revealed a robust performance in the U.S. services sector, with the Services PMI for December coming in at 54.1—surpassing the expected 53.3. Additionally, the “prices-paid” index, a measure of inflationary pressure, hit 64.4, exceeding both expectations and the previous month’s figure. U.S. job openings also increased more than expected, suggesting that the Federal Reserve may hesitate to cut interest rates anytime soon.
This shift in sentiment also had ripple effects across U.S. financial markets, with the 10-year Treasury yield climbing to 4.68%, its highest level since May, which contributed to declines in major stock indices, including a 1% drop in the Nasdaq and a 0.4% fall in the S&P 500.
Despite the immediate setback, some analysts remain optimistic about the longer-term outlook for cryptocurrencies. Vince Yang, CEO of zkLink, explained that while short-term fluctuations are common, these dips are often followed by larger rallies. “The broader sentiment shift we’ve seen before isn’t unusual for crypto markets. With more crypto-friendly policies potentially on the way in the U.S., there’s reason to remain positive about the future.”
However, not everyone shares the same view. QCP Capital, a Singapore-based trading firm, warned of a potential rocky period ahead for crypto markets in January. The firm highlighted the U.S. Treasury debt ceiling issue, which is expected to come to a head mid-month, as a possible trigger for further market volatility as the government may need to take “extraordinary measures” to meet its financial obligations.
