Will the cryptocurrency market’s sluggish performance continue?

Written by: Blockhead  Compiled by: Vernacular Blockchain

Uncertainty over U.S. tariffs, following the $1.5 billion Ethereum hack on the Bybit trading platform last week, exacerbated the loss of confidence among cryptocurrency investors, causing Bitcoin to fall below $90,000 and hit its lowest point since November 18 on Tuesday.

Bitcoin fell more than 7% to about $87,200, down more than $20,000 from its peak of more than $109,000 on Donald Trump's inauguration day last week.

1. Market macro environment

With signs of a weakening U.S. economy, recession fears have returned.

There is growing evidence that Americans are becoming more anxious about their economic future amid uncertainty about President Trump’s policies. U.S. consumer confidence fell sharply last month, the most since August 2021.

Americans are spending less: More than half of consumers are delaying major life decisions because of concerns about the economic outlook and the consequences of Trump’s tariff threats, according to a new Wells Fargo survey.

One ​​in six has put off plans for further education, one in eight has put off retirement plans and about a third has put off buying a home.

As a reflection of recession fears, safe-haven Treasury prices have risen sharply, with yields falling to their lowest in two months.

Adding to those concerns was Trump's reaffirmation of a Monday deadline to impose 25% tariffs on imports from Canada and Mexico, which were delayed last month.

Smaller cryptocurrencies have suffered far more than Bitcoin, which has fallen about 8% over the past week. Dogecoin, Solana and CardanoToken have lost about 20% of their value, according to CoinGecko.

Since the beginning of the year, crypto market sentiment has generally been sluggish, especially in recent weeks with the volatility surrounding memecoins and the recent Bybit hack, which has further exacerbated this pessimistic atmosphere. The recent decline in cryptocurrency prices is not surprising after the largest hack in history.

The current macroeconomic situation has also put pressure on crypto investments. The bigger concern is that a larger sell-off in the crypto market may be triggered by a small but quite worrying trend in risk assets. Wall Street is also not optimistic, and the "Big Seven" stocks have entered the correction range.

Tuesday was a turbulent moment for the US stock market, which has been fluctuating at record levels for most of 2025. The Big Seven, which has driven the US stock market up 54% in two years, has fallen sharply.

On Tuesday, the Bloomberg "Big Seven" index fell 3.4% and is now down more than 10% from its all-time high on December 17. During this period, the combined market value of the seven companies has shrunk by $1.6 trillion. Tesla is one of the biggest losers, down 37%.

Despite the decline in the stock market, we have seen a significant decoupling between cryptocurrencies and US stocks. This year, Bitcoin's correlation with the Nasdaq has fallen significantly, and the market sentiment towards cryptocurrencies is currently generally negative.

“The crypto market is in deep negative sentiment, mainly due to a series of memecoin scandals and scams,” said Martin Leinweber, head of digital asset research and strategy at MarketVector Indexes and author of Mastering Crypto Assets. He added: “High-profile scams like the Libra Coin incident in Argentina, Trump Coin, and other meme tokens have severely hit investor confidence, causing Solana and other altcoins to fall sharply.”

Although Solana remains one of the most scalable, low-cost, and fast blockchains, it is now known as the “Memecoin chain.” Due to various FUDs (fear, uncertainty, and doubt), a lot of money has flowed from Solana to Ethereum and other networks. But Solana’s core advantages remain: it is not just a gathering place for memecoins, but also hosts DeFi, AI applications, real assets (RWA), and next-generation financial instruments.

Meanwhile, Bitcoin prices had been fluctuating in a small range below $100,000 before Tuesday's plunge, leading many traders to sell Bitcoin as they believed the crypto bull run was over.

However, is this really accurate?

Source: Total Return Index (benchmarked at 100), MarketVector Indexes

The shift in market sentiment has been exacerbated by changes in U.S. cryptocurrency policy that have failed to meet expectations, which has exacerbated the "decoupling" between cryptocurrencies and traditional stock markets. "It is very unusual for the correlation between cryptocurrencies and stock markets to break down, especially in the current macroeconomic environment that still favors risky investments," said Leinweber.

As the dollar weakens, the head of MarketVector Indexes expects cryptocurrencies and other risky assets to benefit as they have in the past. "Given this situation, it is unlikely that cryptocurrencies will remain depressed for long," he said. "Capital flowing into the stock market will sooner or later flow back into the digital asset market."

2. Cryptocurrency bottoming out: Has it hit the bottom?

Leinweber said that more than 93% of the top 100 cryptocurrency tokens are currently trading below their 90-day moving average. Such dire market conditions usually precede a market bottom, rather than persisting over the long term.

The Crypto Fear and Greed Index, a market indicator that tracks social media activity, volatility, trends and prices, recently fell to a five-month low of 25, reflecting the growing pessimism in market sentiment. Cryptocurrency prices continue to slide amid uncertainty over Trump's tariff policy.

Some analysts are beginning to wonder if it's time to "buy the dip." In the long run, Geoffrey Kendrick, global head of digital asset research at Standard Chartered, said Bitcoin could benefit from a decline in U.S. Treasury yields, a change that stems from a shift in market sentiment toward risk aversion after Friday's PMI report, and a rebound is expected in the medium term.

"But it's not time to buy the dip yet, the market could fall to around $80,000," Kendrick added.

Analysts at Bernstein reiterated their forecast for a year-end price of $200,000 for Bitcoin, and traders are closely watching upcoming U.S. inflation data for possible bullish signals, especially if the data trends toward the Federal Reserve's target.

However, Trump's policies have begun to have a negative impact on crypto assets, as well as broader risk markets. Uncertainty over whether tariffs are a negotiating tactic or an actual threat is making many investors uneasy.

Bank of America strategist Michael Hartnett said "skepticism about the direction of the S&P 500" is growing as market risks continue to increase.

Even so, Wall Street's benchmark index is just 2.6% away from its all-time high set last week.

In an interview with Bloomberg TV today, Hartnett warned that if stock prices fall another 6%, the government may take action to stop the decline.

Meanwhile, Elon Musk’s “Ministry of Government Efficiency” remains actively seeking government jobs and budget cuts in Washington. Investors are trying to quantify the impact of this purge on the Fed’s interest rate path, and the market’s pessimism is clear.

If DOGE can achieve a $100 billion budget cut, it would be enough to reduce the consumer price index by 0.2 percentage points, said Anna Huang, an economist at Bloomberg. If the cut is larger, reaching $600 billion, then it would be equivalent to a reduction of 0.8 percentage points. She believes that if the above happens, the Fed will have to cut interest rates further. "Expecting a rate cut in 2026 = underestimating Elon," said Anna.

Fears about tighter chip restrictions on China have caused semiconductor stocks to plummet after Trump’s latest tough talk on tariffs and Beijing. Intel and Nvidia fell 1.5% each, while ASML and ASMI of the Netherlands fell 2%. Tokyo Electron of Japan fell 4.9%. Cryptocurrency-related stocks also fell as the price of Bitcoin fell below $90,000, hitting its lowest point since mid-November. This reversed some of the stock market gains after Trump's re-election. Microstrategy shares fell more than 6% and Coinbase fell more than 5%.

3. Analysis of U.S. Treasury yields

During Trump's first administration, the stock market was the most important indicator for the real estate tycoon-turned-president. However, as Trump's second term enters its second month, the White House's focus has turned to a new indicator: the 10-year Treasury yield.

Musk and Treasury Secretary Scott Bessant mentioned lowering market borrowing costs as a goal, a goal reminiscent of policies during President Bill Clinton's administration.

They need to pay attention to the Treasury market, especially the 10-year Treasury yield, because it directly affects the borrowing costs of home buyers and large US companies. It is not clear how the market will react to Bessant's proposal to cut the deficit and Musk's criticism of government bureaucracy. Investors still have certain expectations for the possibility of success.

In the past few weeks, US Treasuries have outperformed interest rate swaps of the same maturity. However, most creditors are still looking for observable and substantial results.

At present, the trend of risk aversion remains, and the overall macroeconomic dynamics also show some pressure.