From decrypt by Sebastian Sinclair

Bitcoin is under short-term pressure as macroeconomic shifts and changing sentiment continue to weigh on upward momentum.

Despite reaching a record high of over $108,000 in December, Bitcoin has seen a reversal driven by a strengthening U.S. dollar, heightened volatility, and cautious positioning among traders.

That’s according to Joe McCann, founder and CEO of crypto investment firm Asymmetric, who has adopted a more bearish outlook in the near term while maintaining a bullish long-term stance. 

McCann noted a confluence of market signals, including a December 18 hawkish Federal Reserve press conference and a significant move in the Volatility Index (VIX), has shifted short-term probabilities to favor a downside correction.

The U.S. dollar, measured by the Dollar Index (DXY), has been a focal point among leading analysts, including Real Vision’s Chief Crypto Analyst Jamie Coutts.

On the same day the Federal Reserve cut rates by 25 basis points, the DXY unexpectedly surged, breaking multi-year resistance levels. 

“Conceptually, this makes no sense,” McCann tweeted Tuesday, referencing the traditional expectation for the dollar to weaken when interest rates are reduced. 

The dollar's strength, however, reflects underlying market dynamics that include global liquidity constraints and investor demand for safe-haven assets.

Still, market participants are not entirely bearish. 

McCann highlighted that he holds a heavy cash position, which allows for flexibility in capturing value during downward moves. 

"There are moments in bull markets where the weighted probabilities of outcomes favor a move to the downside, even for a few weeks, that can present alpha-generating opportunities," he said.

In other words, short-term dips can be a chance for smart investors to make extra money by buying during the drop and selling when prices rise again.

Still, these situations often end up catching investors on the wrong side of a trade and are incredibly hard to predict.

Looking ahead, analysts suggest Bitcoin’s path will remain tied to broader macroeconomic conditions, including Federal Reserve policy and the performance of the U.S. dollar. 

“Waves of favorable regulatory narratives continue to support the spot market,” Singapore crypto trading outfit QCP Capital wrote in a note to investors on Monday. “However, It won't be smooth sailing into January, as structural risks loom.”

The U.S. Treasury is expected to hit its debt limit mid-month, forcing it to use special steps to keep paying the government’s bills, for example.

“This could trigger market volatility as discussions around the issue intensify,” QCP wrote.