Bitcoin's Market Correction: How Fed Policy Triggered a Cryptocurrency Rout and Recovery

The cryptocurrency market experienced a significant correction as Bitcoin prices fell sharply following announcements from the Federal Reserve Chair Jerome Powell regarding interest rate expectations for 2025. The broader digital asset landscape reflected similar pressures, with most major cryptocurrencies experiencing pronounced declines before recovering some losses through technical dynamics and positioning adjustments.

Federal Reserve’s 2025 Rate Cut Projections Spark Market Unease

The primary catalyst for the market disturbance emerged from the Federal Reserve’s December 2024 policy decision, which signaled only two rate cuts projected for 2025—substantially fewer than many investors had anticipated. This more restrictive outlook, combined with Powell’s hawkish commentary regarding inflation expectations, disrupted what had been a consistently rising market environment throughout late 2024. The surprise nature of this policy stance forced immediate portfolio adjustments across traditional and digital asset classes alike.

Bitcoin’s price action reflected this sudden shift in sentiment. The leading cryptocurrency attempted to consolidate gains around the $100,000 psychological level but failed to establish sustainable support. Prices deteriorated through the session, eventually settling below $96,000 at the intraday low—representing a 4.8% decline within a 24-hour window. Recovery attempts proved temporary, as broader macroeconomic concerns continued to weigh on risk assets.

Altcoins Face Steeper Losses Amid Broader Selloff

Alternative cryptocurrencies suffered disproportionately compared to Bitcoin during this market phase. The CoinDesk 20 Index, which tracks the broader cryptocurrency market excluding Bitcoin and Ethereum, declined more than 10%, indicating substantial weakness across mid-cap and large-cap digital assets beyond the top two cryptocurrencies.

Ethereum, the second-largest cryptocurrency by market capitalization, experienced a 10.8% decline, slipping below the $3,500 level. Other prominent projects fared even worse: Cardano’s ADA, Chainlink’s LINK, Aptos’ APT, Avalanche’s AVAX, and Dogecoin’s DOGE all declined between 15% and 20% during the comparable timeframe. Solana presented a particularly notable case—the asset retreated to its weakest price level since early November, essentially erasing the substantial gains accumulated following the 2024 presidential election period when cryptocurrency investors had anticipated supportive regulatory policies from the incoming administration.

Leveraged Positioning and Liquidation Cascades

The severity of the price declines was partially amplified by forced liquidations in cryptocurrency derivatives markets. According to CoinGlass data, approximately $1.2 billion in leveraged positions were liquidated across all cryptocurrency assets during the 24-hour period following the Fed’s rate decision. Over $1 billion of these liquidations represented long positions—essentially bets that prices would continue ascending.

This cascade of forced selling highlighted the elevated leverage present in the marketplace and demonstrated how quickly sentiment can shift when macroeconomic catalysts emerge. The liquidation spiral represented a significant portion of the total market dislocation during this period.

Traditional Markets and Macroeconomic Backdrop

The cryptocurrency correction occurred within a broader financial market adjustment. U.S. equity indexes, including the S&P 500 and technology-focused Nasdaq, showed modest recovery attempts but remained pressured. The U.S. dollar strengthened significantly, with the dollar index (DXY) rising above the 108 level—its highest point since November 2022. Simultaneously, the 10-year U.S. Treasury yield climbed sharply above 4.6%, marking its highest level since May.

These traditional market movements underscored the interconnectedness between crypto asset prices and macroeconomic factors, particularly monetary policy expectations and currency dynamics.

Technical Bounce and the Question of Sustainability

Following the initial selloff phase, Bitcoin demonstrated a sharp technical rebound from intraday lows, eventually consolidating around the $69,000 level as short positions faced pressure and thin liquidity conditions amplified the reversal move. This bounce lifted sentiment across altcoin markets, with assets including Ethereum, Solana, Dogecoin, and Cardano all participating in the recovery. Crypto-related equity securities, including companies like Coinbase and Circle, similarly benefited from the improved risk appetite.

However, market strategists urged caution regarding the durability of this technical recovery. As Joel Kruger from LMAX Group noted, the rebound appeared driven primarily by forced short covering and thin liquidity conditions rather than fundamental improvements in the underlying business conditions. The bounce represented a necessary technical relief after an extended selloff, but establishing a sustainable uptrend would require Bitcoin to break through key resistance levels around $72,000 and $78,000 on a consistent basis.

Looking Forward: Context and Perspective

Despite the sharp correction, several market participants contextualized the pullback within longer-term trends. Azeem Khan, co-founder and COO of layer-2 network Morph, suggested that after months of relentless appreciation, a drawdown “feels healthy” from a technical and sentiment perspective. Khan also noted that year-end portfolio rebalancing and tax-loss harvesting strategies, which are common in traditional markets, could be contributing to reduced demand in the cryptocurrency space during this particular season.

The market correction highlighted the fundamental tension between the optimism surrounding potential pro-cryptocurrency policies that had driven the extended rally through November and December, and the reality of a more hawkish Federal Reserve committed to managing inflation expectations. As markets digested these competing narratives and repositioned accordingly, Bitcoin and the broader cryptocurrency ecosystem demonstrated both the vulnerability to macroeconomic shocks and the technical resilience that characterizes these emerging digital markets.