Ethereum Value Plummets 8% – Another Drop Below $3,000 Approaching?

The value of Ethereum (ETH) suffered a significant decline on Tuesday, plummeting 8% to below $3,400 as risk appetite was broadly impacted by strong US economic data that raised concerns about a potential rebound in US inflation, which could lead to slower or fewer interest rate reductions from the US Federal Reserve.

10 year above 4.65% after AM data
JOLTS job openings exceeded expectations at 8.098mn vs est 7.740mn
ISM services also stronger at 54.1 vs est 53.5 pic.twitter.com/Edm994lfOs

— Special Conditions Analysis Newsletter (Jay) (@SpecialSitsNews) January 7, 2025

The JOLTs data indicated a rebound in US job openings, a key indicator suggesting a strengthening labor market ahead.

A widely recognized business survey report, on the other hand, came in stronger than anticipated, indicating that the dominant US service sector remains in robust condition.

As traders increased their expectations regarding persistent US economic strength, heightened inflation in the future, and fewer rate cuts from the Fed, long-term US bond yields surged, with the US 10-year reaching its highest levels since April 2024, nearing 4.7%.

This development exerted downward pressure on risk assets across the board – higher yields in the market’s benchmark “risk-free” asset typically burdens assets, and the riskier these assets appear, the more likely they are to decline.

This clarifies why leading cryptocurrencies like Ethereum, which many traders consider a risk/liquidity play, are particularly sensitive to macroeconomic repricing events like this.

With Ethereum’s value now approximately 10% lower from Monday’s peaks in the mid-$3,700s, traders are questioning whether a new price collapse is imminent.

Will Ethereum soon drop below $3,000, jeopardizing the continuation of the post-Trump election victory bull run?

Will Macro Headwinds Push Ethereum Price Below $3,000?

Macro factors have certainly posed a significant challenge to the crypto market and broader risk assets since the Fed’s hawkish policy meeting in mid-December.

The central bank is evidently more attuned to data that suggests persistent inflation and economic strength, as evidenced by Tuesday’s figures.

The case for further rate cuts in 2025 is becoming increasingly fragile and may weaken further if Friday’s official US jobs report for December also comes in stronger than expected.

This could add to the existing market headwinds and keep major cryptocurrencies, like the Ethereum price, on the defensive.

In the medium term, it’s challenging to argue that easing liquidity conditions will serve as a significant boost for crypto in 2025.

The Fed continues to reduce its balance sheet following its 2020/2021 quantitative easing surge. Additionally, US liquidity indices have shown little change since around mid-2022.

The Arthur Hayes USD Liquidity Index, which is calculated by taking the Fed’s balance sheet minus the US Treasury General Account balance at the NY Fed, plus the amount of accepted reverse repo bids at the NY Fed, indicates US liquidity is currently about $6 trillion, still well below its late 2021 peaks in the $7 trillion range.

Current US economic conditions suggest that the Fed is unlikely to implement substantial easing, and liquidity will probably remain around current levels in 2025.

Analysts expecting 2025 to mirror the types of movements seen during the 2020/2021 zero interest rate/QE-fueled bull run may find themselves disappointed.

All things considered, if financial conditions continue to tighten (evidenced by a further rise in US yields), then yes, Ethereum could indeed plunge back below $3,000 in the short term.

However, does a lack of incoming liquidity in 2025 signify the end of the bull market? Probably not. Here’s why.

Ethereum Below $3,000, Buy The Dip?

If the Ethereum price were to fall below $3,000 in the short term, this could present an excellent opportunity for investors to accumulate more aggressively.

Indeed, liquidity conditions at present are unlikely to provide a significant advantage for crypto in 2025, but this could change in the coming years.

More crucially, however, is the anticipated pro-crypto shift in the regulatory and adoption landscape in the US this year.

In simple terms, the impending pro-crypto Trump administration is poised to herald a new golden age for the US crypto industry and markets more broadly.

The US may be on the verge of establishing an official Bitcoin reserve, which could spark a global race to acquire the asset.

This would act as a substantial tailwind for the entire market. Even if that does not materialize, the Trump administration comprises pro-crypto advocates who are set to foster a more favorable environment for innovation and growth in the US.

13 days until Gary Gensler steps down.
13 days until possibly the most pro-crypto administration in history takes office.
Trump’s cabinet is about to position the U.S. as the ‘crypto capital of the world.’
Here’s everything you need to know pic.twitter.com/xVJLnzOoLN

— Cryptopolitan (@CPOfficialtx) January 7, 2025

Most importantly, anti-crypto zealot SEC Chair Gary Gensler is set to leave the agency in under two weeks, and Trump’s proposed replacement is expected to halt the agency’s campaign against the industry.

INTEL: Gary Gensler will step down as SEC Chair in 13 days

— Strong Intel (@solidintel_x) January 7, 2025

This is particularly promising for the altcoin sector, which has been most adversely affected by the SEC’s regulation through enforcement strategy recently.

Trump and his family are also known supporters of Ethereum, holding the cryptocurrency in substantial amounts and even launching a token on its blockchain.

So yes, liquidity might not be a significant factor this year, but 2025 could be crypto’s most significant year ever in terms of achieving broader adoption and acceptance.

Ethereum’s status as the only major altcoin with a spot ETF in the US, BlackRock’s favored altcoin, and the still undisputed status of DeFi set it up for a compelling year ahead.

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