Crypto Market Reversal: $700M Liquidation Cascade Follows Fed's Bitcoin Policy Stance

The cryptocurrency sector experienced a sharp pullback after U.S. Federal Reserve Chair Jerome Powell’s remarks about the central bank’s inability to own bitcoin under current regulations. This policy clarification, delivered during a post-FOMC press conference on January 19, 2025, triggered a significant market correction that unraveled months of bullish sentiment and forced major crypto positions into liquidation.

Federal Reserve’s Regulatory Position Shakes Crypto Confidence

Powell’s comments specifically addressed questions regarding President-elect Donald Trump’s campaign promises to establish a U.S. bitcoin strategic reserve. The Fed chair stated that such policy decisions would require congressional action, with the central bank unable to participate under existing frameworks. This regulatory stance contradicted earlier market expectations that had been fueled by Trump’s July 2024 campaign pledge to maintain 100% of all bitcoin held or acquired by the U.S. government.

The market’s immediate reaction was stark. Bitcoin fell 3% following Powell’s announcement, triggering a cascade of selling across the entire cryptocurrency landscape. This correction proved particularly severe for altcoins, which faced disproportionate pressure compared to the flagship digital asset.

Massive Liquidation Event Signals Market Extremes

The sharp pullback unraveled over $700 million in bullish positions across cryptocurrency futures markets. Bitcoin itself dropped below $100,000 before stabilizing during early Asian trading hours, while alternative tokens experienced even steeper declines. XRP, DOGE, and Solana retreated as much as 5.5%, while BNB and Ethereum declined approximately 2.5%.

Chainlink suffered the most severe losses, plunging 10% as the market digested Powell’s regulatory comments. This sudden reversal reversed earlier gains driven by Trump-backed World Liberty Financial’s $2 million acquisition of LINK tokens, illustrating how quickly sentiment can shift in crypto markets.

Data from CoinGlass revealed an important market dynamic: smaller altcoins and meme tokens recorded higher liquidation losses than Bitcoin and Ethereum futures, suggesting retail and leveraged traders bore disproportionate losses during the correction. Liquidation events of this magnitude typically indicate market extremes—either panic selling or panic buying—and can signal potential turning points.

Market Perspectives on Policy Impact and Recovery

Industry analysts offered divergent views on the market’s trajectory. Nick Ruck, director at LVRG Research, suggested that Powell’s comments may have marked a local market peak, particularly if a U.S. bitcoin strategic reserve was indeed off the table. “Although an interest rate cut would normally have a bullish reaction, the market strongly reacted after the Fed Chair’s regulatory stance,” Ruck noted.

Conversely, traders at Singapore-based QCP Capital maintained constructive long-term views. The firm advised market participants to remain committed to positions during temporary downturns, emphasizing that 2025 could prove broadly constructive for cryptocurrency valuations, especially with Trump’s administration taking office.

Technical Recovery and Short-Term Bounce Dynamics

Following the initial selloff, Bitcoin staged a sharp technical rebound, recovering to approximately $69,000 as short positions were forcefully closed out. This short squeeze jolted related assets higher, including altcoins such as ETH, SOL, DOGE, and ADA, alongside crypto-exposed equities like Circle and Coinbase.

However, LMAX Group’s Joel Kruger cautioned that this recovery appeared technically driven rather than fundamentally supported, reflecting bearish positioning and thin liquidity conditions rather than clear positive catalysts. Some fund managers, according to FalconX’s Joshua Lim, began rotating into volatile altcoins and derivatives positions to capitalize on the recovery phase.

Critical Resistance Levels Define Crypto Path Forward

The durability of Bitcoin’s recovery hinges on specific technical checkpoints. Bitcoin must sustain breaks above $72,000 and $78,000 resistance levels to signal a stronger structural uptrend in the cryptocurrency market. As of mid-February 2026, the broader crypto sector showed signs of stabilization, with most major tokens posting gains over recent 24-hour periods, suggesting some recovery momentum may be taking hold.

The near-term trajectory for cryptocurrency depends on whether institutions view Powell’s stance as a permanent headwind or a temporary policy clarification that markets can ultimately digest and move beyond.