Bitcoin Declines as Dollar Strength and Economic Policy Shifts Impact Markets

TLDR

• Bitcoin dropped below $97,000 after briefly touching $102,000, marking its worst weekly performance
• Trump’s potential tariff plans and economic emergency declaration are creating market uncertainty
• Strong dollar and robust employment data suggest Fed may maintain higher interest rates
• Pro-crypto legislation likely delayed as Congress prioritizes other issues
• Market experts maintain positive long-term outlook despite short-term challenges

The cryptocurrency market is experiencing turbulence as Bitcoin retreats from recent highs, influenced by multiple factors including Donald Trump’s proposed economic policies and a strengthening U.S. dollar. The leading cryptocurrency, which had gained over 45% following the November presidential election, has shown signs of weakness in recent trading sessions.

Bitcoin briefly touched $102,000 on Monday, according to CoinGecko data, before experiencing a sharp decline that pushed prices below $97,000. The downward movement continued throughout the week, marking one of Bitcoin’s weakest weekly performances in recent months.

Bitcoin Price on CoinGecko

The retreat comes as Trump considers declaring a national economic emergency to implement widespread tariffs, according to CNN reports. While no final decision has been made, the mere possibility has introduced uncertainty into financial markets, affecting various asset classes including cryptocurrencies.

Zach Pandl, head of research at Grayscale Investments, pointed to dollar strength as a key factor in Bitcoin’s recent performance. “Bitcoin’s problem at the moment is the strong dollar,” Pandl told CNBC, noting that recent Federal Reserve communications have contributed to the currency’s robust position.

The dollar’s strength has been further supported by December’s employment data, which exceeded expectations. This strong jobs report has led investors to recalibrate their expectations for interest rate cuts, with many now believing the Federal Reserve will maintain current rates longer than previously anticipated.

According to the CME FedWatch Tool, market participants now see a 97% probability that the Fed will keep rates unchanged during its upcoming January 28-29 meeting. This marks a shift from earlier predictions of multiple rate cuts in the near term.

The Federal Reserve’s recent actions reflect this cautious approach. While the central bank implemented a 25-basis-point rate cut last month, it accompanied this move with hawkish messaging and reduced its projected number of rate cuts for the year from previous estimates.

The cryptocurrency market’s reaction to these developments has been notable. After the initial optimism surrounding Trump’s potential return to office and his perceived pro-crypto stance, the market is now processing the complexities of his proposed economic policies and their potential impact on digital assets.

Adding to the market’s considerations is the timeline for potential pro-crypto legislation. JPMorgan analyst Kenneth Worthington suggests that Congress will likely focus on non-crypto priorities over the next three months, potentially delaying the implementation of supportive regulatory frameworks.

The New York Digital Investment Group (NYDIG) shares this assessment. Greg Cipolaro, NYDIG’s research head, highlighted in a recent report that various governmental processes, including appointments and confirmations, could slow the implementation of new crypto-related policies.

Alex Thorn, head of research at Galaxy Digital, acknowledges the possibility of near-term market choppiness but maintains that the fundamental drivers supporting Bitcoin and other digital assets remain intact.

The cryptocurrency market continues to monitor Trump’s proposed tariff plans, which could create various inflationary pressures if implemented. The potential economic emergency declaration would give Trump broader authority to implement these trade policies, though the specific details and timing remain unclear.

Market participants are particularly focused on how these policies might interact with current monetary conditions. The combination of high interest rates, strong employment data, and potential trade restrictions creates a complex environment for risk assets like cryptocurrencies.

The recent price action has triggered increased trading activity across major exchanges, with volume indicators showing heightened market participation during the downturn. This suggests active repositioning by both institutional and retail investors in response to the changing market conditions.

Technical indicators point to key support levels that traders are watching closely, with particular attention to the $95,000 range as an important threshold for maintaining market confidence.