BTC Dips to $106K – Big Buyers Step In, But Can Trump’s Policies Send It to New Highs?
Digital Asset Market: Bitcoin reached an all-time high before experiencing a sharp dip of over $2,000 in minutes. This dip erased record-high open interest (OI) of over $70 billion. Investors jumped in to buy the dip as an opportunity to accumulate, with over 150k BTC being accumulated by large-volume holders at $98,133.
In other news, US President-elect Donald Trump has met with the Crypto.com CEO Kris Marszalek to discuss policies that may affect the cryptocurrency industry. The meeting took place at Trump's home in Mar-a-Lago, Florida. On the same day, Crypto.com dropped its lawsuit against the US Securities and Exchange Commission (SEC). The exchange had filed the lawsuit in October after receiving a Wells notice from the SEC. However, the company withdrew the lawsuit because it intends to work with the incoming administration on a regulatory framework for the industry. Since winning the election, Trump has proposed appointments indicating his support for the crypto industry and has launched his digital asset project. He has also had discussions with Coinbase CEO Brian Armstrong and has made appointments for individuals favorable to the industry.
Macro Economics: China has risen from a minor player in the auto industry to the dominant global leader, accounting for 39% of global car production in just 20 years. This rapid growth is primarily thanks to heavy government investment, advancements in automation, and a thriving domestic market. As domestic sales have slowed, China has turned to export markets, particularly for electric vehicles (EVs). Chinese brands, such as BYD, specialize in affordable EVs and have gained global recognition for their advanced technology. As a result, Chinese automakers have surpassed their once-dominant Japanese competitors in domestic and international markets. China's success in the auto industry draws concerns from other countries, leading to trade barriers and tariffs. Still, its significant investment in and technological edge over EVs position it to continue dominating the global market for years.
Equities: U.S. stocks slipped on Tuesday, despite positive retail sales data, as investors await the start of the Fed's two-day policy meeting, in which an interest rate cut is widely expected. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all fell, while some old-economy stocks that had gained following the reelection of Donald Trump have struggled. The streak of declines for the Dow is the longest since the 1970s, partly due to a shift toward technology stocks. Although the market expects a cut today, concerns remain around the Fed decision today and into the next year due to unending inflationary pressures. Meanwhile, retail sales data for November beat expectations, further adding to the debate about the necessity of the impending rate cut. Overall, November 1978, the last time the Dow closed eight straight days off, saw its second consecutive year of losses.
In the technology sector, Nvidia's stock has declined more than 14% from its record high in early November, as investors fear a slowdown in AI spending from Big Tech companies. This could affect Nvidia's position as the leading supplier of AI chips, and competition from rivals like Amazon and Broadcom adds to concerns. Despite concerns, Microsoft, Google, and Meta invest heavily in AI. According to a recent poll, only 4% of US workers use it daily. Meanwhile, many analysts believe that any slowdown in AI spending is ‘unfounded’ and that AI spending will continue to increase significantly in the coming years. Still, maybe the increase will not be as profound as in 2024.The Fed and US Treasury: All eyes are on the Fed Meeting tomorrow, where a 25bp cut is expected at 95% probability. This will be the 3rd cut this year for a total of 100bp. Inflation remains a concern for the Fed and the financial markets. Today’s positive sales data will not help with the decision to cut rates. The focus shifted back to inflation with the release of the November Consumer Price Index (CPI) last week, which showed little progress toward the Federal Reserve's 2% target. With the CPI annual rate now nudging up to 2.7% — 3.3% when excluding food and energy, this is the fourth consecutive month at these levels. Looking back to the peak of 9% inflation in mid-2022, it is clear that there has been significant progress towards the Fed's target. However, the recent trend in inflation can be compared to the struggles of losing those last few stubborn pounds in a weight-loss journey. If President Trump wants to solve the inflation problem, he must address the housing problem and build more homes. This is an area where the Feds can’t do much, and cutting rates will not solve the problem. For now, the November nonfarm payrolls report solidified the expectation that the Federal Reserve will cut interest rates when it meets this month.
Geopolitical: In a dangerous escalation, a top Russian military general and head of the country's chemical weapons forces was killed in Moscow in a targeted bombing that Ukraine quickly claimed. Lieutenant General Igor Kirillov, who oversaw Russia's radiation, chemical, and biological protection troops, was hit by an explosive device hidden in an electric scooter outside his apartment building. The blast also killed his assistant. The Security Service of Ukraine (SBU) has openly taken credit for the attack, claiming that Kirillov was a war criminal responsible for deploying chemical weapons in the ongoing conflict between Russia and Ukraine. Video footage released by the SBU shows the moment the bomb went off, blowing the scooter into the air and targeting Kirillov and his aide as they exited the building. Russian officials, including President Putin and Deputy Chairman of the Security Council Dmitry Medvedev, have vowed that Ukraine will face consequences for this act of terrorism. The Kremlin suspects that Western intelligence agencies may have assisted in the assassination.
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Bitcoin experienced a 2% pullback after briefly touching its all-time high of $108,000. However, strong buying interest quickly emerged, stabilizing the price to around $106,000 as large buyers eagerly absorbed the dip. Market sentiment remains focused on speculation surrounding the US Treasury's potential decision to purchase Bitcoin, which could propel BTC to unprecedented highs. However, any formal decision on this front hinges on Trump assuming office in the coming weeks, leaving traders to monitor political developments and market whispers closely.
Meanwhile, financial markets are bracing for the Federal Reserve's impending rate cut decision, with a 25-basis-point reduction already priced in. Any deviation from this expectation could send shockwaves across asset classes. Persistent inflation remains a key concern and will undoubtedly be a top priority for the incoming administration. Despite current efforts, such as tariffs and immigration policies, inflation continues to resist downward pressure, signaling that broader solutions are needed.
The housing market poses another significant challenge, notably absent from Trump's current agenda. Stimulating housing starts while addressing affordability issues remains a delicate balancing act. Lowering interest rates could provide relief but risks further fueling inflation, particularly in housing prices and rents. Achieving price stability without stifling growth will require strategic policymaking as the new administration grapples with these complex economic forces.
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