After Bitcoin reached an all-time high of $108,000 on December 17, the cryptocurrency market experienced a sharp decline. In anticipation of the Federal Reserve’s (Fed) interest rate decision, the price of the first cryptocurrency dropped below the $100,000 mark, causing the entire crypto market’s capitalization to fall by 3% to $3.65 trillion. However, analysts are confident this is just a temporary correction.
Why the Market Crashed
The primary factor influencing the crypto market was the U.S. Federal Reserve’s decision to lower interest rates by 25 basis points, as expected. This move caused a drop in traditional assets: the S&P 500 declined by 3%, and the Russell 2000 lost 4.4%. In response, Bitcoin fell from around $106,000 to below $99,000.
This volatility led to liquidations of long positions in the cryptocurrency market. About $600 million was liquidated in the last 24 hours.
One of the key statements by Federal Reserve Chair Jerome Powell was that the Fed does not have the right to own Bitcoin, which could have had a significant market impact. Other important points from Powell’s statements included:
- The Fed continues to fight inflation, aiming to stabilize the labor market and control inflation rates.
- The labor market is cooling, and economic activity is growing moderately.
- The Fed revised its interest rate forecasts, reducing the number of rate cuts from four to two.
- Lowering rates too slowly could negatively affect the U.S. economy and labor market.
- The Fed is prepared to slow the rate cuts if inflation does not fall to the 2% target.
- Geopolitical risks and uncertainties remain important factors for the economy.
- Rate cuts are driven by steady economic growth and low unemployment rates.
The drop affected not only Bitcoin but also other top cryptocurrencies. Ethereum (ETH), which had already been losing value in recent days, fell another 5.02% over the past 24 hours to $3,670. Other major cryptocurrencies such as Dogecoin (-7.08%), Cardano (-5.58%), and Tron (-3.8%) also declined.
Technical Indicators
Before the drop, analysts noted a bearish divergence between the cryptocurrency’s price and the Relative Strength Index (RSI). This means that although prices were rising, the RSI was falling, indicating a weakening upward trend. Nevertheless, experts emphasize that such corrections are normal, especially given the cyclical and volatile nature of the crypto market.
Technical analysis also suggests that the current correction may be a temporary pullback. According to analyst Matt Hougan, Bitcoin’s 10-day Exponential Moving Average (EMA) is still above the 20-day EMA, indicating the ongoing bullish trend. Additionally, growing institutional investor interest and corporate Bitcoin purchases support long-term positive sentiment.
What’s Next
Despite short-term losses, some experts believe that cryptocurrencies remain within a long-term bull trend. Forecasts for 2025 promise a positive start for Bitcoin. According to a report by Matrixport, the cryptocurrency could show record-high prices and fiat inflows at the beginning of 2025.
Moreover, institutional investor interest continues to grow, as does Bitcoin buying by corporations and even states. This bolsters hopes for the long-term development of the crypto industry.
However, not all forecasts are so optimistic. Arthur Hayes, renowned crypto analyst and co-founder of BitMEX, suggested in his latest essay that after Donald Trump’s inauguration in January 2025, the crypto market could face a downturn. He believes naive investor expectations regarding the creation of a national Bitcoin reserve may lead to great disappointment, sparking a wave of selling and price declines in cryptocurrencies.
Despite periodic slumps, according to an NFT Evening study, Bitcoin’s rise above $100,000 has created 14,211 new millionaires and four new billionaires.
This post is for informational purposes only and is not an ad or investment advice. Please do your own research making any decisions.