Crypto Rally's Market Correction: From December Selloff to February Recovery

The cryptocurrency market experienced a significant pullback in late 2024 following hawkish signals from the Federal Reserve, marking a dramatic reversal from months of sustained upward momentum. What began as a broad-based crypto rally through much of autumn deteriorated rapidly when Fed Chair Jerome Powell signaled a more conservative approach to interest rate cuts for 2025, triggering a cascade of liquidations and losses across digital assets. However, the subsequent recovery in early 2026 underscores the market’s resilience and structural demand underlying the crypto rally narrative.

The December Market Correction: Magnitude and Impact

Bitcoin retreated significantly from its then-recent bid above $100,000, eventually settling below $96,000 as the sell-off intensified. The broader CoinDesk 20 Index plummeted more than 10%, with altcoins bearing the brunt of the correction. Ethereum fell 10.8%, while Cardano (ADA), Chainlink (LINK), Aptos (APT), Avalanche (AVAX), and Dogecoin (DOGE) each suffered 15%-20% declines. Solana (SOL) was hit particularly hard, sinking to levels not seen since early November and effectively erasing the post-election rally gains that had propelled it toward record highs just weeks earlier.

The market mechanics behind this crypto rally reversal were severe: CoinGlass data revealed approximately $1.2 billion in liquidated leveraged positions across all assets within 24 hours of the Fed announcement, with over $1 billion consisting of long positions that had been betting on continued price appreciation. This forced unwinding created additional downward pressure as overleveraged traders exited positions simultaneously.

Federal Reserve Policy Shift: The Catalyst

The catalyst for this correction originated from traditional finance rather than the crypto ecosystem itself. The Federal Reserve’s December 2024 projection indicated only two rate cuts would occur in 2025—fewer than market participants had anticipated. Powell’s accompanying remarks adopted a noticeably hawkish tone regarding inflation concerns, catching many investors off-guard and triggering a broad-based selloff across cryptocurrencies, equities, and even gold.

The U.S. Dollar Index surged above 108 for the first time since November 2022, reflecting broader capital flows toward traditional safe havens. Meanwhile, 10-year Treasury yields climbed above 4.6%, further pressuring risk assets including the crypto rally that had defined the late 2024 period.

Altcoins and Technical Structures Under Pressure

Market strategist Joel Kruger from LMAX Group noted that the crypto rally had already created technical vulnerabilities—specifically, the market had become “on pins and needles around the possibility for a correction following the record run in the price of bitcoin through $100,000.” The Fed’s hawkish pivot supplied the necessary trigger, and “fallout from Wednesday’s Fed decision was simply too much to ignore.”

The correction also reflected seasonal dynamics. Year-end tax-loss harvesting strategies employed by institutional investors accelerated selling pressure, as portfolio managers offset losses against previous gains to optimize tax positions. While this tax-driven activity occurred in traditional securities, similar dynamics may have influenced crypto positioning as year-end approached.

Market Recovery and Current Crypto Rally Resilience

By February 2026, the market had begun displaying notable recovery signals. Bitcoin has rebounded to $68.23K with a 4.27% 24-hour gain, while Ethereum recovered to $2.06K, posting a 7.75% daily advance. The broader altcoin complex showed even stronger momentum: ADA rallied 11.01%, LINK gained 8.54%, APT surged 15.63%, AVAX advanced 11.17%, DOGE climbed 8.72%, and SOL recovered to $88.01 with a 7.69% 24-hour gain.

This recovery appears driven by technical factors—specifically, a “short squeeze” that compressed bearish positioning as thin liquidity conditions amplified upside moves. Joshua Lim from FalconX observed that some funds had begun rotating capital back into volatile altcoins and options strategies, suggesting renewed appetite for crypto rally participation among select institutional players.

Forward-Looking Technical Levels and Market Structure

Kruger cautioned that the durability of this bounce remains uncertain, warning that “key resistance levels for bitcoin around $72,000 and $78,000 must be broken on a sustained basis to signal a stronger structural uptrend.” The rebound appears more mechanical than fundamental, driven by positioning normalization rather than clear catalysts supporting renewed crypto rally expansion.

Despite the December setback, Azeem Khan from layer-2 network Morph offered perspective that “when you zoom out and consider the year-over-year growth, a pullback like this feels healthy” for market maturation. This viewpoint reflects industry consensus that cyclical corrections strengthen the underlying crypto rally trend by shaking out overleveraged speculators and establishing healthier positioning structures.

The 2024-2026 period demonstrates that crypto rallies, while spectacular during momentum phases, remain vulnerable to macroeconomic policy shifts and technical unwinding. The market’s subsequent recovery suggests underlying institutional demand persists, though investors should monitor near-term resistance levels before confirming whether the crypto rally can sustain above critical psychological thresholds.