Following a record-breaking run, the asset’s price has now settled at around the $93,000 mark
The price of Bitcoin (BTC-USD) slumped nearly 10% on a 24-hour basis as of Friday morning as traders broadly divested risk-on assets and indexes, such as the technology-heavy NASDAQ 100 (NDX).
The Bitcoin price had stayed above the psychologically significant $100,000 level, fuelled largely by Donald Trump’s presidential victory, for approximately 10 days. By early Friday, it became apparent that Bitcoin had decisively crossed below $100,000, settling at around the $93,000 mark.
Furthermore, Bloomberg reported a “record outflow” of $680 million from U.S.-based exchange-traded funds (ETFs) investing directly in Bitcoin. Examples of popular spot Bitcoin ETFs include the iShares Bitcoin Trust (NASDAQ:IBIT) and the Fidelity Wise Origin Bitcoin Fund (BATS:FBTC).
Predictably, the altcoin market saw similar activity. As of Friday morning, Ethereum (ETH-USD) was down 12% to the $3,200 area. The meme coin market wasn’t immune to the downturn either, with Dogecoin (DOGE-USD) off by a bruising 20% to around $0.29 on a 24-hour basis.
Analysis: Cryptos get rocked after Federal Reserve shock
So what’s generally prompting the sour mood in cryptocurrency and risk assets? The cryptocurrency rout might seem counterintuitive, especially after the Commerce Department disclosed a relatively healthy 3.1% gross domestic product (GDP) growth rate for 2024’s third quarter.
Thus, the primary cause of the Bitcoin pullback might not be any specific economic condition. Rather, it’s probably the market’s response to events occurring on Wednesday, the final day of December’s Federal Open Market Committee (FOMC) meeting.
During that meeting, the Federal Reserve reduced the federal funds rate by 25 basis points or 0.25%, a move that had been widely expected. However, the Federal Reserve’s “dot plot” (a visual guide to the Federal Reserve officials’ interest rate path forecasts) indicated that Fed officials only expect to reduce the benchmark interest rate twice in 2025.
That’s down from September’s forecast of four fed funds rate reductions in the coming year. Consequently, after a powerful rally in Bitcoin and other risk-on assets, shock and disappointment evidently took hold of the markets.
Wednesday was a particularly rough day for risk assets, including cryptocurrency and the NASDAQ. The sell-off subsided on Thursday, only to resume on Friday morning.
Over the next few trading sessions, prudent investors might choose to take a “one day at a time” approach to Bitcoin and other cryptocurrencies. These are volatile assets, and it’s still unclear how much longer and deeper the selling will persist.
