Analysis of the Downward Trend in the Cryptocurrency Market from the Perspective of American Finance

At the beginning of August, the cryptocurrency market witnessed a sharp correction. Bitcoin once dropped below $112,000, and over 110,000 people went bankrupt in the past 24 hours, with a total liquidation amount of $369 million. This phenomenon has drawn widespread attention from the market. An in-depth analysis from the perspective of American finance can help us better understand the complex causes and potential impacts behind it.

From the perspective of US monetary policy, the July non-farm payroll data in the US was significantly lower than expected, indicating that the labor market is deteriorating at an accelerating pace. Traders have increased their bets on the Federal Reserve cutting interest rates in September, and market expectations for the Fed's subsequent easing monetary policy have risen sharply. Against such a macroeconomic backdrop, the flow of funds and risk appetite in the financial market have changed. On the one hand, investors expect the Federal Reserve to cut interest rates, and the appeal of some investment products in traditional financial markets that originally relied on a high-interest-rate environment has declined. In theory, funds should seek new investment outlets. On the other hand, concerns over an economic recession have intensified, market risk aversion has risen, and funds tend to flow into safe-haven assets. As a high-risk investment product, cryptocurrencies are facing pressure of capital outflow under the dominance of risk aversion sentiment. Some investors are concerned that an economic recession will affect the market demand and value support for cryptocurrencies, so they choose to sell off their cryptocurrencies and hold cash or purchase traditional safe-haven assets such as gold and government bonds, which leads to a decline in the cryptocurrency market.

The trade policies of the United States have also had an indirect impact on the cryptocurrency market. The trade protectionist policies implemented during Trump's administration, such as imposing additional tariffs and other measures, disrupted the global trade order and economic growth expectations. The new tariff policy of the United States has intensified market concerns. The White House announced a 25% tariff on Indian imports and a tariff of up to 50% on key raw materials such as copper. This may not only push up the short-term consumer price index, but also seriously disrupt the global supply chain. Although trade tariffs do not directly affect cryptocurrencies, their impact on market sentiment can spread to speculative assets such as Bitcoin. The increasing uncertainty of global economic growth has made investors more cautious about high-risk assets and reduced their investment in cryptocurrencies. Moreover, changes in trade policies may affect industries closely related to cryptocurrency mining and the manufacturing of mining machine hardware, leading to changes in the supply and demand relationship of cryptocurrencies, further undermining market confidence and triggering a decline in cryptocurrency prices.

The regulatory attitude and trends in the US financial market should not be ignored either. The cryptocurrency market has always been confronted with regulatory uncertainties during its development. The regulatory policies of the U.S. Securities and Exchange Commission (SEC) and other regulatory agencies towards cryptocurrencies are not clear and uniform. Sometimes there are reports of strengthened regulation, and at other times, they show a relatively open attitude towards some cryptocurrency-related businesses. This regulatory uncertainty has made investors skeptical about the future development of the cryptocurrency market. Once the market shows any signs of movement, investors are prone to panic and choose to sell off and exit. For instance, if there are market rumors that the SEC will conduct stricter reviews of cryptocurrency trading platforms or classify certain cryptocurrency projects as illegal financial activities, it will trigger panic selling among investors, causing a sharp drop in market prices.

The behavior of American institutional investors in the cryptocurrency market also has a profound impact on market trends. In recent years, some American institutional investors have begun to venture into the cryptocurrency field, such as some hedge funds and investment banks participating in Bitcoin spot ETFs and other products. When the market environment changes, the large-scale buying and selling activities of institutional investors will amplify market fluctuations. If institutional investors sell off a large amount of cryptocurrencies due to poor economic conditions or adjustments in their own investment strategies, it will trigger a sell-off across the entire market. Just like some large investment institutions, after seeing poor economic data and unstable trade policies in the United States, in order to control risks, they may reduce their holdings of cryptocurrency assets, which triggers other investors to follow suit and sell off, leading to a significant drop in cryptocurrency prices and frequent margin calls.

The current downturn in the cryptocurrency market is the result of the combined effect of multiple financial-related factors in the United States. With the continuous changes in the US financial market and economic situation, the future of the cryptocurrency market remains full of uncertainties. Investors need to closely monitor the direction of US financial policies and the performance of economic data, invest with caution, and guard against risks.