Crypto Market Plunges as Fed Policy Shifts Derail Bitcoin's Upward Momentum

Recent crypto news highlights a dramatic market correction that has sent shockwaves through digital asset portfolios. Bitcoin’s failure to sustain its position above $100,000 has triggered a broader reassessment of near-term price prospects, with major altcoins facing similar selling pressure. The pullback has exposed significant cracks in market liquidity, raising questions about the sustainability of the rally that dominated early 2025.

When Leverage Collapses: The $700 Million Liquidation Event

The most striking consequence of this market dislocation has been the cascade of forced liquidations across derivatives platforms. Over $700 million worth of long positions were forcefully closed, reflecting the brutal mechanics of leveraged trading when sentiment shifts abruptly. What made this liquidation event particularly noteworthy was its asymmetrical impact—smaller altcoins and meme tokens experienced disproportionately severe deleveraging compared to major currencies like BTC and ETH. This pattern suggests retail and smaller institutions bore the brunt of the selloff, while professional traders managing larger positions weathered the storm more effectively.

The liquidation process itself offers insights into market fragility: when traders cannot maintain adequate margin to support their positions, exchanges execute automatic closures at steep losses. Large-scale liquidations often signal market extremes, with many technical analysts viewing them as early warning systems for potential reversals or capitulation events.

Fed Policy Reversal Punctures Rally Expectations

The crypto market’s relationship with macro policy took an unexpected turn when Federal Reserve Chair Jerome Powell made comments that deflated bullish sentiment. During remarks following the FOMC meeting, Powell indicated that current regulations prevent the central bank from holding Bitcoin—a statement that directly contradicted months of speculation surrounding President Donald Trump’s proposed strategic Bitcoin reserve.

This regulatory clarification proved far more impactful than the Fed’s rate-cut signals, which many had anticipated. Traders who had positioned themselves for a sustained rally fueled by the Bitcoin reserve narrative found their core thesis undermined. XRP fell 5.5%, DOGE declined 5.5%, and Solana’s SOL dropped 5.5% in the immediate aftermath. Even Chainlink’s LINK token—which had recently surged following World Liberty Financial’s $2 million acquisition—erased those gains with a 10% plunge.

BTC itself suffered a 3% immediate decline from Powell’s comments, though the broader correction had already been underway. Ethereum, BNB, and other major holdings fell between 2.5% and 5.5%, illustrating how interconnected sentiment flows through the entire ecosystem.

Market Psychology: Is This the Peak?

Analyst perspectives have diverged sharply in the wake of this correction. Nick Ruck from LVRG Research cautioned that the market may have topped if the Bitcoin strategic reserve promise is no longer operative, since that narrative had substantially fueled the previous months’ rally toward new all-time highs. According to Ruck, Powell’s inflation concerns—indicating that rising prices will remain a persistent headwind throughout 2025—provided an additional psychological blow that overrode the normally bullish reaction to rate-cut expectations.

However, not all participants share this cautious outlook. Singapore-based crypto trading firm QCP Capital maintained a bullish stance heading into 2025, advising clients not to exit positions during temporary drawdowns. With Trump’s administration now in office and potential pro-crypto policy tailwinds ahead, QCP researchers suggested that maintaining exposure may prove prudent for longer-term crypto investors.

Technical Snapshot: Signs of Short-Term Resilience

Despite the selling pressure, Bitcoin found support and rebounded toward $69,000 in what several analysts characterized as a technical short squeeze. This sharp reversal jolted underperformers—Ethereum, Solana, Dogecoin, and Cardano all participated in the bounce—alongside crypto-linked equities such as Coinbase and Circle, which had also absorbed heavy selling during the downswing.

According to Joel Kruger at LMAX Group, the rebound appears to be driven more by the mechanics of forced liquidations unwinding and thin order book conditions than by genuine fundamental strength. When bearish positions become overcrowded and liquidity dries up, even modest buying pressure can generate violent rallies that don’t necessarily reflect improved underlying conditions.

FalconX analyst Joshua Lim noted that some institutional funds have begun rotating into higher-volatility altcoins and options strategies during this recovery phase, suggesting selective risk appetite rather than broad-based conviction.

For Bitcoin to establish a sustainable uptrend, the market will need to overcome key technical resistance. Levels around $72,000 and $78,000 represent critical thresholds that must be breached on a consistent basis to signal genuine structural recovery rather than a temporary relief rally. Until these barriers fall decisively, the crypto market likely remains in consolidation mode.

The Crypto News Landscape Moving Forward

The recent correction has reset expectations after months of euphoric sentiment. While the immediate catalyst was Fed policy clarity, the underlying vulnerabilities—overleveraged positions, thin liquidity in altcoins, and narrative-dependent price dynamics—remain embedded in market structure. As crypto continues to mature as an asset class, these episodes will likely test whether institutions and retail participants alike are genuinely committed to long-term accumulation or merely chasing short-term momentum.