Is Trump pulling the rug out from under the Federal Reserve?
On this Christmas Eve, the cryptocurrency market is not filled with festive cheer, but rather the sound of critical support levels being breached.
When Trump's seemingly favorable policies meet the Federal Reserve's reluctance to ease its hawkish stance, a silent withdrawal of liquidity is unfolding. Today's market reminds me of the old saying on Wall Street: 'Only when the tide goes out do you discover who's been swimming naked.'
Currently, not only is the tide going out, but some have already begun to 'pull the rug.' Trump and the Federal Reserve are key players in this liquidity game.
01 Market Winter: Behind Bitcoin Breaking Key Support Levels
This morning, when I opened the market chart, I saw that Bitcoin had already broken the key support level of $88,000, currently struggling around $87,000. This is not an ordinary technical correction, but an inevitable result of multiple converging factors.
Ethereum is also not optimistic, hovering around $2950, struggling to defend the psychological barrier of $3000. The entire market's market capitalization has significantly shrunk, and in the context of thin holiday liquidity, it resembles an auction without buyers.
Extreme fear is enveloping the market. The Crypto Fear & Greed Index has fallen to an extreme fear level of 24, and investors are choosing to stay on the sidelines rather than enter and buy the dip before Christmas. This sentiment stems not only from technical breakdowns but also from deep concerns about the macro environment.
Technical indicators are sending clear bearish signals. The Bitcoin daily chart has formed a 'bearish triangle flag' pattern, and the 50-day moving average has crossed below the 200-day moving average, creating a classic 'death cross'. This is an important sign of weakening medium to short-term trends for technical traders.
02 Trump and the Federal Reserve: The Monetary Power Struggle Unfolding
On the surface, the market decline is due to technical adjustments and a lack of holiday liquidity. But upon deeper analysis, you will find that a profound struggle for monetary power is unfolding—the Trump administration is taking over the Federal Reserve in an unprecedented manner.
The independence of the Federal Reserve is being challenged. The Trump team has placed several key figures in core positions, none of whom are traditional 'central bank types', nor do they uphold central bank independence. Their goal is clear: to weaken the Federal Reserve's monopoly on interest rates and liquidity and to hand more monetary power back to the Treasury.
"The Era of Fiscal Dominance in Monetary Policy" is approaching. The U.S. is transitioning from an "Era of Central Bank Dominance" to an "Era of Fiscal Dominance". In this new framework, long-term interest rates may no longer be determined by the Federal Reserve, liquidity may come more from the Treasury, and central bank independence will be weakened, leading to greater market volatility.
The direct consequence of this power transition is that the market is thrown into chaos. The old order is loosening, the new order has not yet fully established, and all prices are behaving more 'illogically' than usual. In this transitional period, high-volatility assets like Bitcoin naturally become the hardest hit.
03 Liquidity Alert: Warning Signals from Across Asset Classes
A phenomenon worth noting is that not only are risk assets like Bitcoin falling, but even traditional safe-haven assets like gold are falling in sync. This usually occurs in extreme environments where market liquidity is undergoing systemic contraction.
The marginal tightening of dollar liquidity is the core reason. The shift in Federal Reserve policy expectations and the cooling of market rate cut expectations have directly impacted high-volatility assets due to rising funding costs. Institutional investors are forced to reduce leverage positions, intensifying selling pressure.
The era of cash is king is back. The true safe havens in extreme market conditions are cash, short-term government bonds, and money market funds—high liquidity assets that can be quickly converted into cash. This is the logic behind the current market where various assets are falling together; investors are chasing liquidity rather than returns.
Today, the U.S. Department of Commerce announced that the annualized GDP growth rate for the third quarter reached 4.3%, far exceeding the expected 3.3%. This is a strong performance for the economy, but it has become the 'last straw' for risk assets, as it may give the Federal Reserve more reasons to maintain high interest rates for a longer period.
04 Options Expiration: Potential Volatility Catalyst During the Christmas Holiday
This Friday (December 26), a record options expiration event worth about $28.5 billion for BTC and ETH options is approaching. This could become a 'magnifier' for short-term fluctuations in the current low liquidity environment.
"Maximum Pain" theory. The options market has a "maximum pain" theory, meaning prices tend to move towards levels that cause the most options contracts to lose value at expiration. The maximum pain for Bitcoin is approximately around $85,000. This means that if market forces are inclined, prices may gravitate towards this level.
High volatility risk in a low liquidity environment. The Christmas holiday has led to many traditional financial institution traders leaving the market, causing a sharp decline in market liquidity. In this 'shallow water' market, any larger buy or sell orders can cause drastic price fluctuations, and large-scale options expirations may further amplify this volatility.
05 My strategic advice: How to respond now
In such a market environment, I stick to my operational strategy: defense first, wait and see.
For short-term traders, I recommend maintaining extreme vigilance. Due to low liquidity easily amplifying price fluctuations, the current market is a high-risk environment. It is best to hold light positions or stand by, waiting for options events to settle and for prices to make clear directional choices at key support or resistance levels before making decisions.
For long-term investors, I believe that short-term macro and event disturbances do not affect Bitcoin's long-term narrative. Some on-chain data shows that whales may be accumulating during the downturn. If the price can drop to the strong support zone of $84,000-$85,000, it can be considered as a reference range for long-term positioning.
Personally, I will patiently wait for signs of stabilization after the price tests lower support levels. Maintaining a bit of greed during extreme market panic and a degree of vigilance during widespread market greed is the way to survive in the cryptocurrency market.
The next few days will be crucial. The market will closely monitor Bitcoin's rebound test at $88,000. If it can quickly reclaim this level, it may indicate that the current breakdown is a false break; but if the rebound lacks strength and continues to decline, the $85,000 support level will face severe testing.
The key is the capital flow situation after the holiday. Whether institutions and large funds will re-enter the market after the New Year will be a critical signal for whether the market can stabilize. When new liquidity is injected into the market, the current pessimistic sentiment is expected to gradually ease.
This Christmas holiday, it might be good to temporarily step away from the markets and enjoy time with family. The market will always be there, but important moments in life pass in the blink of an eye.
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