Key Insights
- •The crypto market may react fast if the US completely cuts income tax.
- •Improving Fed rate cut odds and steady job data provide short-term support for crypto prices.
- •Despite current weakness, a 14% rise from late-November lows indicates returning buyers.
The crypto market experienced a significant drop of over 36% from its early October high. However, it has since seen an increase of nearly 14% from the low recorded on November 21st.
This gradual recovery in crypto prices suggests that some buyers are beginning to re-enter the market. December is poised to be a crucial month, with several new developments potentially influencing the flow of money into cryptocurrencies, particularly concerning the possibility of the US eliminating income tax.
How a Possible Income Tax Cut Connects to the Crypto Market
Donald Trump has stated that the United States might consider removing income tax entirely, suggesting that revenue generated from tariffs could replace lost income tax revenue. A tariff is an additional charge imposed on imported goods. This cost is typically passed on to consumers by the importer, leading to higher prices for goods within the country, such as food, tools, and electronics.
While not a direct tax on individuals, tariffs function as an indirect tax on daily consumption, as they are applied to essential items that people regularly purchase. The increased revenue collected by the government through these tariffs could, according to Trump's proposal, offset the need for income tax.
If income tax were to be eliminated, individuals would retain a larger portion of their monthly earnings. This increased disposable income could lead some individuals to allocate a portion of their funds towards cryptocurrency assets like Bitcoin and other digital currencies.
Consequently, the cryptocurrency market is closely monitoring news related to tariffs and potential tax changes.
US Job Data and Fed Rate Cut Hopes Provide Support
US jobless claims have fallen to 216,000, which is lower than the anticipated 225,000. This data suggests that the job market is cooling but not experiencing a collapse. A stable job market can provide individuals with greater confidence to engage in riskier investments.
Furthermore, the probability of a Federal Reserve interest rate cut in December has risen to approximately 84.7%. A rate cut is expected to inject more liquidity into the US financial system, with reports suggesting a potential influx of around $1.5 trillion. Increased liquidity in the financial system often benefits risk-on assets, including cryptocurrencies.
This environment can make it more favorable for traders to buy and hold assets, thereby boosting confidence within the crypto market.
The combination of steady employment figures and strong expectations for a rate cut is contributing to a more positive sentiment in the crypto market.
Crypto Market: On-Chain Data Shows Selling Is Slowing Down
The 90-day Spot Taker CVD for Bitcoin has shifted from a strong selling trend to a neutral level. Spot Taker CVD indicates whether market orders are predominantly used for buying or selling a cryptocurrency.
A move towards a neutral level suggests that selling activity is becoming less aggressive compared to previous periods.
Data also indicates that some long-term holders are leveraging their Bitcoin holdings as collateral for loans. This behavior implies a belief in the long-term strength of Bitcoin. However, it also introduces a risk of forced selling if the price declines significantly.
For the time being, the on-chain data points to a reduction in selling pressure, which is helping the market maintain its position above recent lows.
What December May Bring for Crypto Prices
The crypto market experienced weakness in October and early November. However, the upward movement observed since the November 21st low suggests a gradual re-entry of new buyers.
The market is currently awaiting a significant development that could trigger a substantial price movement. Such developments could include the potential elimination of income tax, which would leave individuals with more disposable income, or a confirmed Federal Reserve rate cut in December, which would increase liquidity in the crypto market.
Additionally, clarity on a new tariff plan could provide further insights amidst ongoing macroeconomic uncertainties. Any of these factors could lead to increased investment in risk assets, a category that cryptocurrencies typically fall into.
The crypto market often reacts positively to such developments, and with several key updates anticipated in December, even a single strong piece of news could contribute to an upward trend in crypto prices.