Crypto Dip Triggered by Fed's Hawkish Stance: Bitcoin Tumbles Below $96K While Altcoins Face Brutal Liquidations

The cryptocurrency market experienced a significant selloff on Thursday following the Federal Reserve’s announcement of a slower pace of interest rate cuts for 2025. This crypto dip wiped out much of the gains accumulated since November’s post-election rally, catching investors off guard after weeks of bullish momentum.

When the Fed’s Rate Cut Reality Hit Markets

Federal Reserve Chair Jerome Powell’s Wednesday commentary on interest rate expectations delivered a shock to cryptocurrency investors who had been betting on continued monetary easing. The Fed’s projection of only two rate cuts in 2025 stood in stark contrast to earlier market expectations for more aggressive cuts. This disappointing outlook immediately triggered a broad-based market correction across both traditional and digital assets.

Bitcoin’s attempt to hold ground above $100,000 failed spectacularly as selling pressure intensified throughout Thursday’s trading session. The leading cryptocurrency sank to the low-$97,000s during U.S. trading hours before stabilizing temporarily around $98,000. By day’s end, Bitcoin had surrendered to the selling wave, settling below $96,000 with a 4.8% decline over 24 hours. Analysts noted that this crypto dip felt inevitable after the relentless price appreciation of prior weeks.

The Brutal Reality Across Bitcoin and Altcoins

While Bitcoin’s losses stung investors, altcoins absorbed far more severe punishment during this market correction. The broad-market CoinDesk 20 Index, which tracks major digital assets beyond Bitcoin, plummeted more than 10% in the same timeframe. Ethereum, the second-largest cryptocurrency by market capitalization, slid 10.8% to below $3,500 as sellers rushed for the exits.

The carnage extended across the entire alternative token landscape. Cardano’s ADA dropped 15-20% alongside similar or worse declines for Chainlink’s LINK, Aptos’ APT, Avalanche’s AVAX, and Dogecoin’s DOGE. Most spectacularly, Solana’s SOL experienced a free fall to its weakest level since November 7, effectively erasing the entire post-election rally that had lifted it to a record high above $260 just weeks earlier. The 26% collapse from that peak underscored how quickly sentiment can flip when macro conditions change.

What Triggered the Massive Crypto Liquidation Cascade

The speed and severity of this market decline triggered a systematic unraveling of leveraged positions across the industry. Within roughly 24 hours following the Fed’s rate decision, cryptocurrency derivative markets saw nearly $1.2 billion in liquidated trading positions according to CoinGlass data. More concerning, approximately $1 billion of those liquidations were long positions—essentially forced closeouts of bets that prices would continue rising.

This liquidation cascade amplified the downward pressure as forced selling by margin traders compounded the initial wave of panic selling by retail and institutional investors. The digital asset market’s reliance on leverage meant that Powell’s hawkish tone didn’t just discourage new buyers; it actively triggered mechanical selling across multiple platforms and derivatives venues.

Macro Factors: Dollar Strength and Treasury Yields

The crypto selloff aligned with broader financial market turbulence sparked by shifting monetary policy expectations. The U.S. Dollar Index (DXY), which measures the dollar’s strength against a basket of major foreign currencies, surged above 108—its strongest reading since November 2022. This dollar strength typically pressures commodities and risk assets including cryptocurrencies, as a stronger dollar makes dollar-denominated assets like crypto more expensive for international buyers.

Simultaneously, U.S. Treasury yields climbed sharply, with 10-year yields breaking above 4.6%—the highest level since May. Rising yields generally encourage investors to rotate from risk assets into safer fixed-income instruments, creating additional headwinds for the crypto market which typically benefits from a lower-rate environment.

Why This Crypto Dip May Signal Healthy Market Consolidation

Despite the painful near-term losses, some market observers argued this correction represented natural profit-taking after an extraordinary bull run. Azeem Khan, co-founder and COO of layer-2 network Morph, noted that when measured on a year-over-year basis, “a pullback like this feels healthy” after the dramatic price appreciation witnessed throughout 2024 and into the new year.

Khan highlighted an additional factor often overlooked in crypto discourse: year-end tax strategies. Securities markets frequently experience December selloffs as investors harvest losses against capital gains to reduce their tax liabilities. While difficult to quantify precisely, this tax-loss harvesting dynamic could have contributed materially to the timing and intensity of the crypto dip.

Joel Kruger, market strategist at LMAX Group, echoed this perspective while acknowledging the role of technical factors. “The crypto market had been on pins and needles around the possibility for a correction following the record run in the price of bitcoin through $100,000,” Kruger explained. “The Fed decision provided that catalyst, and the fallout was simply too much to ignore.”

The Bounce: Short Squeeze and Recovery Signals

Cryptocurrency markets are not static, and neither are the conditions that drive them. After the initial capitulation, Bitcoin experienced a sharp technical bounce that reverberated across the broader market. This short squeeze—a forced covering of bearish bets as prices moved higher—reignited buying across Ethereum, Solana, Dogecoin, ADA, and related tokens. The rally even extended to crypto-adjacent equities including Circle, Coinbase, and mining-related stocks.

Joshua Lim of FalconX noted that funds are actively rotating capital toward higher-volatility altcoins and options strategies as the bounce gains traction. However, analysts urged caution about the durability of this recovery, emphasizing that the move appears driven more by technical positioning and thin liquidity than by fundamental catalysts that would justify sustained upside.

For Bitcoin specifically, resistance levels at $72,000 and $78,000 represent critical technical barriers. A sustained break through these levels on an intraday and weekly basis would signal a potential shift toward a stronger structural uptrend. Until then, traders should remain vigilant about the potential for continued volatility as macro uncertainty persists around interest rate trajectories throughout 2025.