Bitcoin Drops to $112,000 Amid Liquidity Constraints and Market Volatility

The crypto market is currently facing challenges despite a temporary boost from the US Federal Reserve's rate cut, which initially pushed Bitcoin toward $120,000.

This week, Bitcoin has dropped to between $110,000 and $115,000.
Factors include institutional investors favoring traditional assets like stocks and gold due to high liquidity and proven performance.
Cryptocurrencies, especially altcoins, are at the end of the liquidity chain, benefiting only when investor risk appetite broadens.

Impact of Fed Policies and Quantitative Tightening

Despite the Fed's rate cuts, quantitative tightening continues, reducing the central bank's balance sheet.
The US Treasury's replenishment of the Treasury General Account absorbs liquidity.
Money market funds hold over $7.7 trillion in cash, limiting capital flow into cryptocurrencies.

Cyclical Trends and Potential Rebound

Historical patterns suggest potential for a rebound following consolidation.
Bitcoin previously surged past $60,000 after a rate cut but later experienced an 11% decline.
Current hovering around $112,000, with Ethereum dropping from $4,600 to about $4,100.

Stablecoin Movement and Institutional Inflows

Stablecoin supply increased from $204 billion in January to $308 billion in September.
Lack of velocity in stablecoin activity limits price impact on cryptocurrencies.
Crypto markets often follow traditional asset gains once stabilized, previously averaging a 12% increase within 30 days and 35% over 90 days after equity market highs.

For recovery, active stablecoin movement, reduced derivatives trading, and significant institutional and ETF purchases are essential.

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