The cryptocurrency market has experienced a significant decline over the past week, and this downward trend has also affected other asset classes, including stocks. Bitcoin dropped close to $93,000, and Ethereum briefly slipped below $3100. Nearly every cryptocurrency among the top 100 is showing red numbers today, with the vast majority suffering losses exceeding 10%.
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Federal Reserve Turns Hawkish
The Federal Reserve’s recent decision to adjust its 2025 inflation forecast has noticeably influenced the cryptocurrency market. Although a 0.25 interest rate cut had been anticipated, the Fed adopted a more hawkish tone by announcing fewer interest rate cuts for the upcoming year. Investors responded negatively to these signals, triggering widespread sell-offs across major digital assets, as well as in stock markets. This is not the first time we have seen cryptocurrencies react strongly to traditional financial policies.
The Fed’s sudden hawkish stance led to sell-offs because cryptocurrencies generally benefit from lower interest rates. We explain why that is the case in this article.
Jerome Powell’s Comments on Bitcoin
As we detailed here, Jerome Powell stated that the Federal Reserve cannot hold Bitcoin and has no intention of changing that stance. This development is bad news for the strategic Bitcoin reserve proposal put forward by Donald Trump. Although this update mainly affects Bitcoin, other cryptocurrencies followed its downward trend since these comments also carry negative implications for the broader crypto adoption.
It is worth noting, however, that these remarks do not entirely rule out the future creation of a Bitcoin reserve. Donald Trump has yet to assume office and may explore various avenues to establish such a reserve independently from the Fed. That said, Jerome Powell’s comments suggest that forming a strategic Bitcoin reserve will be more challenging and time-consuming than some investors might have hoped.
MicroStrategy news
MicroStrategy, one of the largest holders of Bitcoin, has consistently made purchases – even at times when Bitcoin reached new highs – boosting confidence of investors. Now there are rumors that MicroStrategy may pause Bitcoin acquisitions in January due to a speculated blackout period on share or debt issuance. Some analysts suggest this might be related to insider trading regulations, as many companies impose such restrictions after the end of fiscal quarters until their earnings reports are released. Although these rumors remain unconfirmed, they have contributed to investor anxiety.
Profit-Taking
Another potential factor behind the recent market downturn could simply be profit-taking. Just days ago, Bitcoin reached new highs above $108,000, and many altcoins were performing strongly. Some investors may have decided that it was an opportune moment to realize gains. Indicators like the RSI and the Fear and Greed Index had already hinted at a possible correction, as it is not uncommon to see a pullback following a period of rapid growth. Nor is it the first time we have witnessed such a correction in last month. Markets cannot move upward indefinitely, and periodic downturns are a natural occurrence.
Investors Sentiment
Sudden declines across the board might have induced panic among some investors, leading them to panic-sell and further drive prices downward. This scenario is plausible given the influx of new participants in the crypto space who may not yet be accustomed to its volatility.
A more minor contributing factor could be the approaching Christmas season, which often brings increased expenses. Some investors might have chosen to liquidate a portion of their portfolios to cover holiday spending.
Should We Be Worried?
Many investors feel anxious as prices fall across the market. This response is somewhat natural – people tend to react more emotionally to declines than to upward surges. However, it is important to remember that cryptocurrencies are extremely volatile, and we have experienced numerous days with similar drops as well as comparable rallies.
As we frequently remind during such corrections: despite the recent negative news and market panic, the fundamental aspects of cryptocurrency remain unchanged.
Bitcoin remains robust, supported by ETFs and ongoing institutional interest. Negative remarks from the Fed may slow adoption, but they will not halt it. We have witnessed this scenario multiple times throughout the year: geopolitical conflicts or macroeconomic data cause temporary dips in crypto, but in the grand scheme of things, these events amount to little more than background noise.
It’s important to see the bigger picture. Even after the current dip, the overall crypto market capitalization is still about 40% higher than it was just two months ago. Today’s drop of Bitcoin below $95,000 is less alarming when you recall that not long ago, its all-time high was near $73,000. While the red numbers this week may be unsettling, viewed in a larger context, the crypto sector continues to expand.
We have said this many times: if you trust in your crypto investments for the long term and believe in their potential, short-term corrections should not worry you. Neither the Fed’s decisions nor Powell’s comments alter the core fundamentals that drew you to crypto initially. If you remain confident in your holdings, there is no reason to worry – this current correction could even be seen as a chance to acquire more coins at a lower cost.
