Here’s why Bitcoin, Ethereum, XRP, and other altcoins crashed

Cryptocurrency markets experienced a significant downturn on Tuesday, as concerns about the bond market and rising bond yields triggered a broader risk-off sentiment. This retreat erased some of the gains made on Monday, with Bitcoin, Ethereum, Ripple, and Solana all experiencing sharp declines of over 4-5%.

Bitcoin saw a 4% drop, reaching an intraday low of $97,700, while Ethereum (ETH) and other major altcoins followed suit with losses above 5%. The downturn was not limited to cryptocurrencies but also extended across traditional financial markets, with the Nasdaq 100 index falling more than 1%, closing at $19,635, and the S&P 500 dropping 0.5%. These indices, heavily weighted by technology stocks, are particularly sensitive to changes in risk sentiment, which is why the downturn also hit popular tech stocks hard.

NVIDIA, a leader in semiconductor technology, saw its shares fall by 5.4%, erasing over $175 billion in market value. Tesla’s shares also dropped by 3%, while Super Micro Computer fell by 1.5%. This widespread sell-off was largely driven by increasing concerns about U.S. bond yields, which surged ahead of key economic data releases, including the upcoming nonfarm payrolls report and the minutes from the Federal Reserve’s December meeting. The 10-year U.S. Treasury bond yield rose by 1.7% to 4.70%, while both the 30-year and 5-year yields also climbed to 4.61% and 4.50%, respectively.

Rising bond yields are typically viewed as a sign that investors expect the Federal Reserve to maintain a more hawkish stance on interest rates. In its December meeting, the Fed hinted that it might only reduce rates by two times in 2025, which was fewer than market expectations. The release of the Fed’s meeting minutes on January 8 will provide further clarity on its future approach to monetary policy, contributing to the growing unease in markets.

The cryptocurrency sector, in particular, faced additional pressure following a report from the U.S. Labor Department, which showed that job vacancies surged to a six-month high, largely driven by the services sector. This report precedes the official nonfarm payrolls data, which is due to be released on Friday. If the jobs report shows stronger-than-expected employment growth, it could further strengthen the case for the Fed’s hawkish stance, as a tightening labor market could continue to fuel inflationary pressures.

For cryptocurrencies, the combination of rising bond yields, a hawkish Federal Reserve outlook, and potential inflationary concerns led to a sell-off. Some analysts fear that the surging bond yields could spell trouble for Bitcoin and other altcoins, predicting that the high yields could push investors away from riskier assets like cryptocurrencies and into safer alternatives, such as money market funds.

Mark Zandi, Chief Economist at Moody’s, recently warned that the rising budget deficits under former President Donald Trump could contribute to higher bond yields, exacerbating the pressure on risky assets like cryptocurrencies. A continued rotation from risk assets to safer havens could lead to further declines in the prices of Bitcoin and other altcoins, which are already facing increased volatility.

In summary, the sharp retreat in the cryptocurrency market on January 2, 2025, was driven by a confluence of factors, including rising U.S. bond yields, the expectation of a hawkish Federal Reserve, and the potential for stronger-than-expected labor market data. These factors created a risk-off sentiment across financial markets, with Bitcoin, Ethereum, and other altcoins feeling the brunt of the sell-off. As investors closely monitor upcoming economic reports, the outlook for cryptocurrencies remains uncertain, with concerns about rising bond yields potentially leading to further pressure on the market.