The Ethereum (ETH) price took a beating on Tuesday, dropping 8% on the day to below $3,400 as risk appetite took a broad beating following strong US economic data that triggered fears of a US inflation rebound that could result in slower/less interest rate cuts from the US Federal Reserve.
JOLTs data showed a rebound in US job openings, a leading indicator of a stronger labor market ahead.
A widely followed business survey data release, meanwhile, came in stronger-than-expected, suggestive that the dominant US service sector remains in rude health.
As traders upped their bets on continued US economic strength, higher inflation ahead and fewer rate cuts from the Fed, long-term US bond yields jumped, with the US 10-year hitting its highest levels since April 2024 near 4.7%.
That weighed on risk assets across the board – high yields in the market’s benchmark “risk free” asset tends to weigh on assets, and the riskier these assets are viewed, the more they are likely to decline.
That explains why major cryptocurrencies like Ethereum, which many traders view as a risk/liquidity play, are so sensitive to macro repricing events like this.
With the Ethereum price now down roughly 10% from Monday’s highs in the mid-$3,700s, traders are asking is a new price collapse is here.
Will Ethereum soon dump below $3,000, threatening an end to the post-Trump election victory bull run?
Will Macro Headwinds Drive Ethereum Price Under $3,000?
Macro has certainly been a major headwind to the crypto market, and broader risk assets, since the Fed’s hawkish policy meeting in mid-December.
The central bank is clearly now more sensitive now to data that implies stickiness in inflation and economic strength, as Tuesday’s data did.
The argument for more rate cuts in 2025 is increasingly weak, and could yet weaken further if Friday’s official US jobs report for December also comes in stronger than expected.
That could add to the current market headwinds, and keep major cryptocurrencies, like the Ethereum price, on the defensive.
In the medium-term, its tough to argue that easing liquidity conditions will be a major tailwind for crypto in 2025.
The Fed continues to shrink its balance sheet following its 2020/2021 QE splurge. And indices of US liquidity show conditions have been broadly unchanged since around mid-2022.
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, shows US liquidity of currently around $6 trillion, still well below its late 2021 peaks in the $7 trillion region.
US economic conditions, at least how they seem right now, likely mean the Fed won’t embark on substantial easing, and liquidity will likely remain around current levels in 2025.
Analysts expecting 2025 to be a repeat of the kinds of moves seen during 2020/2021’s zero interest rate/QE fueled bull run may be left disappointed.
All said, should financial conditions continue to tighten (seen by a further rise in US yields), then yes, Ethereum could certainly crash back below $3,000 in the short-term.
But does a lack of incoming liquidity in 2025 mean the bull market is dead? Probably not. Here’s why.
Ethereum Under $3,000, Buy The Dip?
If the Ethereum price was to dump below $3,000 in the short-term, this could be a great opportunity for investors to accumulate more aggressively.
Yes, liquidity conditions right now aren’t likely to be a big tailwind for crypto in 2025, but that could change in the coming years.
More important, however, is the upcoming pro-crypto shift in the regulatory and adoption landscape in the US this year.
Simply put, the incoming pro-crypto Trump administration is set to usher in a new golden age for the US crypto industry and markets more broadly.
The US might be on the cusp of the establishment of an official Bitcoin reserve, which could kickstart a global race to accumulate the asset.
This would be a huge headwind to the whole market. And even if that doesn’t happen, the Trump administration is packed with pro-crypto advocates that are set to create a better environment in the US for innovation and growth.
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 end the agency’s crusade to destroy the industry.
This is particularly good news for the altcoin sector, which was hit hardest by the SEC’s regulation by enforcement drive in recent years.
Trump and his family are also known supporters of Ethereum, owning the crypto in substantial amounts, and even launching a token on its blockchain.
So yes, liquidity might not be a major factor this year, but 2025 could be crypto’s best-ever year in terms of gaining broader adoption and acceptance.
Ethereum’s position as the only major altcoin with a spot ETF in the US, BlackRock’s anointed altcoin of choice, and the still undisputed kind of DeFi sets it up for a strong year.
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