1. Introduction: Characteristics of the Current Cryptocurrency Market

The cryptocurrency market is known for its high volatility, high potential returns, and high-risk characteristics in the financial world. As a relatively young and rapidly developing financial sector, it exhibits dynamics that are distinctly different from traditional markets. Every fluctuation in this market captures the nerves of global investors, and the driving factors behind it are often complex and varied. This article will focus on understanding and analyzing three key factors that influence the cryptocurrency market: market sentiment, political environment, and future expectations. These three elements are not only interconnected but also largely dominate the short-term volatility trends of the market.

2. Keyword One: Sentiment

The Sharp Shift in Market Sentiment

The fluctuations in sentiment within the cryptocurrency market are often more intense than those in traditional financial markets, and the first half of 2024 has been particularly tumultuous. Looking back at the market trends this year, we can clearly see the ups and downs of investor sentiment.

Since April 13, the market has experienced a series of significant changes. Initially, despite most altcoins experiencing a price halving, investors remained optimistic, believing this was just a necessary phase, similar to the typical two-phase bull market. However, on June 18, the market hit a new low again, this decline was related to U.S. inflation data exceeding expectations, further undermining investor confidence.

The third bottoming out on July 5 was caused by a combination of multiple factors. Among them, the most notable was the "Mt. Gox compensation event."

As a once-large exchange, Mt. Gox announced it would compensate approximately 142,000 BTC, 143,000 BCH, and 69 billion yen to investors. Meanwhile, the German government announced plans to sell about 44,000 seized bitcoins, with a total value exceeding 2.8 billion euros. These two pieces of news created significant selling pressure expectations in the market in the short term.

The cumulative effect of this series of negative events far exceeded the impact of any single event. They not only directly affected the market supply and demand relationship but, more importantly, shook investor confidence. The market began to question the long-term value proposition of cryptocurrencies, including their effectiveness as an inflation hedge, regulatory risks, and the potential for widespread adoption.

Interestingly, turning points in market sentiment often come from unexpected sources. News related to Trump being targeted but not hit acted like a shot of adrenaline, quickly reversing the market atmosphere. Subsequently, the market began to gradually regain confidence, with prices oscillating upward. This rapid emotional recovery highlights the resilience of the cryptocurrency market and investors' confidence in the long-term outlook. Within just 12 days (from July 5 to 17), the market shifted from widespread pessimism to cautious optimism, with the sentiment index rapidly recovering from extreme fear to greed levels.

The Importance and Limitations of Sentiment Indicators

Here are several commonly used sentiment indicators:

1) Fear and Greed Index: This is one of the most well-known sentiment indicators, which combines multiple factors such as market volatility, trading volume, and social media trends, representing market sentiment on a scale from 0 to 100. The closer to 100, the higher the greed index.

2) Social Media Sentiment Analysis: By analyzing the discussion heat and emotional tendencies on platforms like Twitter and YouTube, especially the direction of KOLs, one can quickly capture changes in market atmosphere.

3) Bitcoin Rainbow Chart: This is a long-term trend indicator that divides Bitcoin prices into different colored zones, reflecting the overall sentiment state of the market.

4) Network Activity Indicators: Metrics such as the number of active Bitcoin addresses and transaction volumes can reflect user participation and market activity levels.

The importance of these sentiment indicators lies in their provision of a quantitative measure of market sentiment, helping to identify potential market turning points and providing additional reference dimensions for investment decisions. However, these indicators also have limitations; they may lag behind actual market changes, there may be contradictions between different indicators, and a prolonged one-sided market does not necessarily indicate an immediate reversal. Therefore, sentiment indicators should only be used as references, and a comprehensive analysis and decision-making should combine them with other market signals and fundamental factors.

3. Keyword Two: Politics

3.1 Potential Impact of the U.S. Election on the Cryptocurrency Market

As the world's largest economy, political changes in the U.S. have a profound impact on the cryptocurrency market. The 2024 U.S. presidential election is undoubtedly the focus of global financial markets, especially the cryptocurrency market.

The Biden administration has taken a cautious stance on cryptocurrencies over the past four years, but recent policies have shown subtle changes. The SEC's acceleration of the Bitcoin ETF approval process is widely interpreted as a strategy to gain support from crypto voters. This shift has indeed brought positive effects to the market, but we must also recognize that policy impacts are often short-term, and their long-term effects remain to be seen.

On the other hand, people may overestimate the Democratic Party's influence on the crypto market. Trump, as a leading Republican presidential candidate, will ultimately need to wait until he takes office to truly implement his policy agenda. There is still a transition period from policy formulation to implementation. In the current political landscape, it is difficult for either party to unilaterally dominate the formulation of cryptocurrency policies.

3.2 Why the Market May Overestimate the Impact of Trump's Election

Trump enjoys a relatively high reputation in the cryptocurrency community, partly due to the comparison with the current president, Biden. Biden's advanced age and some controversial policies have sparked public dissatisfaction, while Trump's "no war" term and recent "fighting for America" image after surviving an assassination attempt have led many to view him as the "chosen one." However, this perspective may oversimplify the political realities in the U.S.

As Biden announces his withdrawal from the race and Kamala Harris emerges as a potential Democratic candidate, the election landscape becomes more complex. In recent years, racial tensions in the U.S. have surged, and Harris, as a biracial woman of African and Indian descent, represents diversity and inclusivity, potentially attracting a large number of minority and female voters. Recent polls show Harris's support slightly exceeding Trump's, indicating that the election outcome is far from certain.

3.3 The Deep Impact of the U.S. Party Struggle

The U.S. presidential election is not only a personal contest but also a struggle between two different political ideologies represented by the Democratic and Republican parties:

Democratic Party: Advocates liberalism and leans towards state intervention in the economy. Major supporters include labor unions, intellectuals, urban elites, immigrants, feminists, minority groups, and the LGBTQ+ community.

Republican Party: Adheres to conservatism and advocates for economic laissez-faire. Major supporters include religious organizations, large corporations, veterans, and white individuals (especially white males).

This deep ideological struggle will determine the future policy direction of the U.S., including its attitude towards cryptocurrencies. Currently, Harris has not clearly stated her position on cryptocurrencies, which brings new uncertainties to the market.

4. Keyword Three: Expectations

Bitcoin Conference

In the cryptocurrency market, expectations often influence price movements more than reality. The expectations of investors and market participants primarily stem from significant events and economic policies. In 2024, two key factors are shaping market expectations: the Bitcoin conference and the potential interest rate cut decision by the Federal Reserve.

From July 25 to 27, 2024, the highly anticipated Bitcoin conference will be held at the Music City Center in Nashville, Tennessee. This conference is not only an annual event in the cryptocurrency world but also a concentrated display of political influence. Republican presidential candidate Trump has confirmed his attendance, and the market expects him to reveal more detailed cryptocurrency policy guidance during his speech. Meanwhile, according to FOX Business, U.S. Senator Cynthia Lummis from Wyoming plans to announce legislation at the conference requiring the Federal Reserve to hold Bitcoin as a strategic reserve asset. Although this plan is still uncertain, its potential impact cannot be ignored. However, U.S. Vice President Harris has confirmed she will not attend the conference, which may suggest a cautious attitude towards cryptocurrencies from the Democratic Party.

Therefore, the market is more closely watching whether Tesla CEO Elon Musk will attend the conference. Reports indicate that Musk's private jet has arrived in Tennessee. As the world's richest person and a well-known supporter of cryptocurrencies, Musk's presence would significantly enhance the conference's influence. If heavyweight figures like Trump and Musk express support for digital currencies at the conference, it could greatly boost market sentiment.

Interest Rate Cuts

Another important factor influencing market expectations is the potential interest rate cut decision by the Federal Reserve. Recently, U.S. stocks have plummeted, with Tesla's stock price dropping over 12%, which has also affected the oil, gold, and cryptocurrency markets. Some speculate that in order to save the economy and stabilize approval ratings, the Democratic Party may be forced to cut interest rates before the election to stimulate the economy. For the incumbent Democrats, stabilizing the economy is crucial for maintaining support. If the Federal Reserve cuts interest rates before the election, it could stimulate short-term economic growth, benefiting the Democratic Party's electoral prospects. For the cryptocurrency market, this could have a positive impact, as a low-interest-rate environment typically drives investors to seek high-yield assets.

5. Conclusion: Rationally View the Market and Manage Risks

Sentiment reflects the collective psychological state of market participants, and changes in sentiment are often rapid and difficult to predict. Investors need to remain rational and avoid being swayed by short-term emotions.

Political factors reflect the complex interactions between cryptocurrencies and the traditional financial system and regulatory environment. Investors need to closely monitor policy changes and understand their potential impacts on the market.

Expectations, as a bridge connecting the present and the future, often influence market direction more than current realities. Investors need to pay attention to short-term expectations while also considering long-term development trends.

Successful investors need to comprehensively consider these factors, seizing long-term opportunities amid short-term fluctuations and seeking certainty in uncertainty.