XRP Down 5%, Leading the Crypto Market’s Decline as Bitcoin Struggles Against a Strong Dollar

A stronger U.S. dollar typically makes dollar-denominated assets, such as Bitcoin and gold, more expensive, leading to reduced demand in the short term.

On the penultimate day of the year, XRP led the cryptocurrency market’s losses, falling more than 5%, as a stronger dollar pressured global currencies and assets, including Bitcoin. This downturn came as Asian equity markets dropped on Monday. Other cryptocurrencies, including Dogecoin (DOGE), Solana’s SOL, Ether (ETH), and Binance Coin (BNB), saw declines of up to 2%. The overall market capitalization of cryptocurrencies fell by 3%, while the CoinDesk 20 (CD20) index, tracking the largest tokens minus stablecoins, dropped 3.5%.

In the U.S., equities also saw a decline on Friday, with investors reducing positions due to uncertainty at the close of the year. An Asia-Pacific index reversed five days of gains, and futures on the S&P 500 and Nasdaq indicated further losses in U.S. trading later that day.

Historically, Bitcoin has moved inversely to the U.S. Dollar Index (DXY), which measures the dollar’s strength against major global currencies, including the euro.

The dollar’s recent strength is largely attributed to anticipation of President-elect Donald Trump’s policies, which are expected to boost the economy in the years ahead. When the dollar strengthens, traditional investments like U.S. Treasuries and stocks, which benefit from a strong dollar, become more attractive compared to cryptocurrencies. This shift in investor preference dampens hopes for a sustained crypto rally, especially amid lower liquidity and year-end profit-taking.

December’s typical “Santa rally” has failed to materialize, with Bitcoin seeing a nearly 4% drop this month, although it is still up 47% for the final quarter. Additionally, reduced expectations for ongoing interest-rate cuts by the Federal Reserve have contributed to a decline in Bitcoin and other cryptocurrency prices over the past month.

Despite these challenges, some remain hopeful about the long-term outlook for crypto. Maksym Sakharov, co-founder of WeFi, expressed optimism in a Telegram message to CoinDesk, stating, “Contrary to what many believe, Bitcoin and altcoins have not reached their price peaks, even though ongoing consolidation is influenced by last week’s interest rate cut. The sell-offs we’re seeing are primarily a knee-jerk reaction to macroeconomic uncertainties. The Fed is preparing for higher rates next year, despite inflation being close to its 2% annual target, which could shift monetary policy and impact the market.”

Sakharov continued, “However, once President-elect Trump assumes office, we expect more corporate firms to enter the Bitcoin space, driven by favorable regulations. If these projections hold true, Bitcoin’s price may eventually decouple from the macroeconomic factors that typically trigger its volatility.”