Why did the cryptocurrency market suddenly crash? 

Through in-depth analysis from a macroeconomic perspective, we have sorted out the reasons for this round of cryptocurrency crashes and the interconnections between various factors (Figure 1).

Figure 1: Zeuspace - Analysis of the Reasons for the Cryptocurrency Market Crash

Sources: Zeuspace

1. Unexpected Decline in U.S. Nonfarm Payroll Data

The U.S. nonfarm payroll data reflects the health of the job market. The recent sharper-than-expected decline in nonfarm data indicates increased short-term downside risks for the U.S. economy. This signal of economic weakness has increased investor concerns about the liquidity of dollar-denominated assets, leading to a significant drop in the U.S. dollar. This situation typically causes investors to withdraw from high-risk assets, including cryptocurrencies.

2. Persistent Uncertainty in U.S. Inflation

Although overall U.S. inflation is on a downward trend, the short-term performance of sticky service inflation remains strong. The Federal Reserve continues to face challenges in balancing inflation control and economic stimulation. This inflation uncertainty suppresses investor risk appetite, leading to a decline in expected returns and prompting investors to withdraw from high-risk assets, further depressing the cryptocurrency market.

3. Rising Geopolitical Uncertainty

Geopolitical risks also affect market stability. As mentioned in Figure 1, the rise of Harris has exacerbated election uncertainties and policy divergences. This political uncertainty leads to instability in global capital markets, undermining investor confidence in high-risk assets such as cryptocurrencies.

4. Weakened Expectations for U.S. Rate Cuts

The market has digested expectations for rate cuts within the year and harbors concerns about insufficient rate cuts. The current market has bet that the Federal Reserve will cut rates by more than 125 basis points within the year. However, can this level of rate cuts offset the panic in global capital markets and the potential risks of accelerated economic recession? We believe that the current market-expected rate cuts are still insufficient to offset the risks brought by this year's high-interest-rate policy, leading investors to avoid risks and causing capital outflows from the cryptocurrency market.

5. Unsustainable U.S. Debt

The U.S. fiscal deficit has exceeded 6%, increasing the debt burden and lowering market expectations for low interest rates. In a high-interest-rate environment, the U.S. will face greater fiscal pressure, causing investors to lose confidence in the dollar and dollar-denominated assets, further impacting cryptocurrency prices.

These five major factors have collectively led to the recent significant drop in Bitcoin prices. These factors are intertwined, further exacerbating market uncertainty, leading to insufficient investor confidence and widespread capital withdrawal to avoid risks. In summary, weak U.S. economic data, inflation uncertainty, rising geopolitical risks, weakened rate cut expectations, and U.S. debt issues are all important reasons for cryptocurrency market volatility. In the current complex economic and political environment, the volatility and riskiness of the cryptocurrency market have further increased. Investors should remain vigilant, closely monitor global economic and policy developments, and adjust their investment strategies accordingly to cope with market uncertainties and potential risks.