Cryptocurrency market is on edge; when will Bitcoin and Ethereum stop falling?

**Chain reaction under liquidity exhaustion**

The crypto market once again staged a brutal scene on Monday. The latest data shows Bitcoin's current price hovers around $87.56K, down more than 30% from the early October high of over $126K. Ethereum is similarly struggling, with a current price of $2.94K, having broken the psychological $3,000 level. Over 190,000 traders were liquidated within 24 hours, with losses reaching $670 million. The persistent low trading volume in the market sounds an alarm again.

Behind this decline, the liquidity crisis has become the last straw that broke the camel's back. Although the Federal Reserve announced a 25 basis point rate cut to the 3.5%–3.75% range at the December meeting, and officially stopped shrinking its balance sheet on December 1, launching a reserve management purchase plan to buy $40 billion in short-term government bonds on December 12—seemingly injecting liquidity into the market—the reality is more complex.

**Fed divergence intensifies, long-term rates rise instead of fall**

Internal disagreements within the Fed over the pace of future rate cuts have reached a breaking point. This internal discord, coupled with external shocks to the Fed's independence, has led to rising long-term bond yields. For risk assets like Bitcoin and Ethereum, this is nothing but adding fuel to the fire.

Notably, Fed Vice Chair Williams released a dovish signal on Monday, indicating that inflation caused by tariffs might be a one-time shock, and downside risks to the labor market are increasing in the near term. This suggests the Fed is shifting its policy focus toward employment performance. After the US November non-farm payroll data is released, if new jobs fall short of the market expectation of 50,000 and the unemployment rate rises above 4.5%, it could instead reinforce market expectations for further easing. However, even then, the short-term boost to cryptocurrencies will be quite limited.

**AI bubble is the real main threat**

I believe the real hidden danger in the current market is not merely liquidity issues but the widespread doubts about the profitability of US tech companies. As a reflection of technology and innovation, cryptocurrencies are among the first to be sold off.

The latest bubble risk indicator from Bank of America’s global research department reveals an alarming trend: although core AI assets have not yet diverged entirely from fundamentals, the market is gradually evolving into a highly bubble-like state, with a near-inevitable burst. Greg Jensen, co-CIO of the world's largest hedge fund Bridgewater, warned on Monday that as big tech companies increasingly rely on external capital to support rising costs, the AI spending wave is entering a dangerous phase.

Investors are generally concerned whether these massive AI capital expenditures can truly translate into profits, which is a key measure of market confidence. The trading volume of Oracle’s credit default swaps (CDS) has more than doubled this year, and the cost for investors to buy these derivatives has surged to the highest levels since 2009. This sends a dangerous signal to the market: the AI risk premium is rising rapidly.

**Technical outlook continues downward, rebound space limited**

From a technical perspective, Bitcoin’s daily chart shows a very weak performance. Constrained by the key resistance at $94K, Bitcoin has fallen back into a downtrend, further breaking below the $86K support. The downward trend since early October remains intact, indicating the overall decline may continue.

In the short term, if Bitcoin cannot effectively recover above $86K, it is likely to continue testing lower levels, with a target around $75K. Investors should focus on the window around January 3, which could serve as an important reference point for assessing the market direction.

**Summary and outlook**

With the AI bubble risk unresolved and market confidence not yet restored, it is premature to call a bottom for Bitcoin and Ethereum. The combined pressures of liquidity environment, macro policies, and corporate earnings expectations make a fundamental recovery unlikely in the near term. Investors should remain patient, closely monitor technical support levels and macroeconomic data, and cautiously prepare for possible continued adjustments in the crypto market.