$BTC was heavily sold off amid concerns that the U.S. Federal Reserve (Fed) will maintain a cautious stance on monetary policy next year.
After losing the important psychological level of 100,000 USD, the largest cryptocurrency in the world has sharply dropped to nearly 92,000 USD. However, immediately after, the market showed signs of recovery, bringing bitcoin back to trading around the threshold of 95,000 USD.
Nevertheless, this price still significantly lags behind the peak of 108,000 USD achieved just a few days ago.
"Witnessing such corrections in cryptocurrency bull markets is quite normal," said Strahinja Savic, Head of Data and Analytics at financial company FRNT Financial, in an interview with Bloomberg.
The price of bitcoin is currently still 130% higher than at the beginning of the year and has increased nearly 50% since President Donald Trump’s victory. The Fed's tougher stance on December 19 has put pressure on most risky assets.
The Fed has signaled a slowdown in interest rate cuts for next year. Additionally, Fed Chairman Jerome Powell stated that the agency "is not allowed to own bitcoin" under the Federal Reserve Act.
He emphasized that they also have no intention of amending the law to participate in the establishment of a cryptocurrency reserve as proposed by President-elect Donald Trump.
"While it is easy to blame the sell-off on the Fed, we believe that the root cause of the market collapse is its overextended growth state," emphasized the analysis team of the cryptocurrency platform QCP Capital.
According to Bloomberg, ETF funds in the U.S. have ended a 15-day streak of inflows into bitcoin, recording a record outflow of 680 million USD, indicating a shift in market sentiment.
Previously, the cryptocurrency market surged after the election victory of President-elect Donald Trump on November 5. However, according to QCP Capital, investor sentiment became overly optimistic, making the market vulnerable to any changes from the Fed later on.
Market instability in the cryptocurrency sector is expected to persist during the year-end holiday, as President Trump prepares to take office and makes threats to impose tariffs on both allies and adversaries of the U.S. Additionally, with the possibility of the Fed slowing down its easing policy, attention is focused on how quickly major financial institutions will accept bitcoin.
"The relationship between monetary policy, acceptance by institutions, and political developments indicates that bitcoin will continue to be sensitive to both macroeconomic factors and specific events in the cryptocurrency space until 2025," said Hani Abuagla, a senior market analyst at XTB.
