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Crypto market prices extended their recent downtrend as Bitcoin and major altcoins erased billions in value. This decline followed the November bear market, when the industry lost billions across major assets. This article explains the main drivers shaping crypto prices in December.
Crypto Market Prices to React to Federal Reserve Interest Rate Decision
One of the primary catalysts for crypto market prices is the upcoming Federal Reserve interest rate decision, scheduled for December 15 this year.
Data on Polymarket shows that the odds of the bank cutting interest rates in December have soared to 89% from below 50% in late November. A rate cut would be highly beneficial to cryptocurrencies and other high-risk assets, such as those in the stock market.
The other notable Fed-related catalyst for the crypto market is Donald Trump’s decision on who will replace Jerome Powell as the Chair of the Federal Reserve. In a statement on Sunday, Trump said that he had made his decision on who will be the Fed Chair, with Polymarket odds on Kevin Hassett rising to 73%.
Hassett, who serves in the White House, has supported sharply lowering interest rates from their current level. The stock and cryptocurrency markets tend to perform well when the Federal Reserve cuts interest rates.
Crypto ETF Inflows
Another top catalyst for the crypto market will be the performance of top exchange-traded funds (ETF) during the month. Third-party data shows that November was one of the worst months for Bitcoin and Ethereum ETFs.
All spot Bitcoin ETFs shed over $3.45 billion in assets during the month, with BlackRock’s having above $70 billion in assets. Fidelity’s Bitcoin ETF now has over $18 billion in assets, while the total assets held by these funds have dropped to about $119 billion.
Spot Ethereum ETFs shed over $1.42 billion in assets, bringing their cumulative net inflows to $12.9 billion. Falling ETF inflows is a sign of waning demand for Bitcoin as the Crypto Fear and Greed Index slumped to the fear zone.
Crypto prices will likely depend on trends in ETFs. A sign of rising inflows will be beneficial for the crypto market, as it will indicate increased demand from American investors.
Futures Open Interest
One reason behind the ongoing crypto market crash is that futures open interest has continued falling in the past few months. Data compiled by CoinGlass shows that the open interest has dropped to $126 billion from the year-to-date high of $250 billion.
A decline in open interest is a sign that investors are reducing their leverage, which in turn affects demand. Therefore, a sign that open interest is rebounding implies that demand is returning.
Key Macro Data to Impact Cryptocurrency Prices
Bitcoin and the broader market will react to some notable macro data from the United States. Some of these metrics are likely to have an impact on cryptocurrency prices.
The first important data to watch will be released on Friday, when the US publishes the latest Personal Consumption Expenditure (PCE) inflation report. This is a closely watched figure because it is the one that the Federal Reserve focuses on when making its interest rate decisions.
The other key numbers to watch are the upcoming US jobs and consumer inflation reports, which are scheduled for release on December 16 and 18, respectively. They will be released a few days after the Fed announces its interest rate decision.
Therefore, these numbers will provide guidance on what to expect in the January meeting. A sign that the labor market is struggling and inflation is falling will be bullish for crypto market prices.
Other factors may determine the performance of the crypto market. For example, technically, a Bitcoin price plunge below $80,000 will lead to more downside. Also, selling by top Bitcoin treasury companies may also have a negative impact on prices.
