Bitcoin suffers its biggest weekly drop since Trump's election win as Fed's hawkish pivot hits the market: $90,000 level teeters

Bitcoin suffers its biggest weekly drop since Trump's election win as Fed's hawkish pivot hits the market: $90,000 level teetersBitcoin experienced its first weekly decline since Donald Trump's presidential victory, plummeting over 7%its largest weekly drop since September of last year. At press time, Bitcoin was trading at $95,199

Bitcoin suffers its biggest weekly drop since Trump's election win as Fed's hawkish pivot hits the market: $90,000 level teeters

Bitcoin experienced its first weekly decline since Donald Trump's presidential victory, plummeting over 7%its largest weekly drop since September of last year. At press time, Bitcoin was trading at $95,199.3, having briefly dipped below $94,000. This downturn impacted not only Bitcoin but also the broader cryptocurrency market, with Ether and Dogecoin, among others, experiencing declines as high as 10%. The primary cause is attributed to the Federal Reserve's hawkish shift, dampening market optimism fueled by the pro-crypto policies anticipated during the Trump administration.

The Fed, on December 21st, implemented its third consecutive interest rate cut but simultaneously hinted at a slower pace of monetary easing in the coming year to curb inflation. This triggered volatility in global equities and sent shockwaves through the cryptocurrency market. The Fed's policy shift directly affected market sentiment. Trump's previously expressed support for favorable crypto regulation and potential national Bitcoin reserves had spurred considerable speculative activity. However, the Fed's hawkish pivot extinguished this optimism, leading to Bitcoin's sharp decline.

Liquidity issues exacerbated Bitcoin's fall. Sean McNulty, trading director at liquidity provider Arbelos Markets, noted record outflows of Bitcoin from US exchange-traded funds (ETFs) last week, putting short-term pressure on the price. McNulty believes Bitcoin might remain above $90,000 until the end of the year, but a breach could trigger further liquidations. He also pointed to "meaningful hedging" in the options market last week, with significant Bitcoin buyers purchasing put options at strike prices between $75,000 and $80,000 for January, February, and March, reflecting cautious market sentiment.

David Lawant, head of research at crypto brokerage FalconX, stated in a report that near-term price volatility remains the "most likely scenario" before entering a "bullish trajectory" in the first quarter of 2025. He warned that low liquidity in the final days of the year could lead to amplified volatility, particularly on December 27th, when the crypto market faces its largest-ever options expiry event. This will further test market resilience and could induce sharper price swings.

Furthermore, the market is closely watching MicroStrategy, a significant Bitcoin holder, which has maintained a weekly Bitcoin purchasing strategy. Investors are keenly observing whether the company continues its weekly buys on Monday, and whether this will reach a price trigger point. MicroStrategy's actions will significantly influence market sentiment, potentially becoming a crucial factor impacting Bitcoin's short-term trajectory. Continued buying could partially support the price and slow the decline; otherwise, it could exacerbate panic selling and further depress the price.

The Fed's policy shift is a crucial factor behind Bitcoin's price drop. The relatively lenient attitude towards cryptocurrencies during the Trump administration, along with market optimism about future crypto regulation, had previously fueled Bitcoin's price rise. The Fed's hawkish monetary policy, tightening liquidity, impacted global financial markets and directly undermined crypto market speculation. Uncertainty about the economic outlook and the potential impact of Fed policy prompted investors to adopt more cautious strategies, reflected in Bitcoin's significant price drop and large-scale options hedging.

This Bitcoin price drop highlights the cryptocurrency market's volatility. Compared to traditional financial markets, the crypto market is more susceptible to various factors, including regulatory policies, market sentiment, and technical issues. This event serves as a reminder of the high risks associated with cryptocurrency investments, urging investors to proceed with caution and fully understand market risks. While some analysts remain optimistic about Bitcoin's long-term prospects, short-term volatility remains a defining characteristic, and investors need to prepare for price fluctuations.

Bitcoin's future price trajectory will depend on multiple factors, including the Fed's monetary policy, the global economic situation, and market sentiment. Changes in the macroeconomic environment can significantly impact the cryptocurrency market, and the actions of market participants can further amplify this impact. Therefore, continuously monitoring macroeconomic conditions, regulatory policies, and market sentiment is crucial for accurately predicting Bitcoin's future price. Investors should closely follow relevant news and analysis reports and make investment decisions based on their risk tolerance.

This Bitcoin price decline not only impacted the cryptocurrency market but also rippled through global financial markets. The interconnectedness between cryptocurrency and traditional financial markets is strengthening, and cryptocurrency price volatility can affect traditional markets. Regulators and market participants need to closely monitor cryptocurrency market dynamics and take appropriate measures to mitigate potential risks. Strengthening crypto market regulation, increasing market transparency, and enhancing investor education will help reduce market risks and promote healthy cryptocurrency market development. The cryptocurrency market will face more challenges and opportunities in the future, and its prospects remain worth watching.

In conclusion, the recent Bitcoin price drop resulted from a confluence of factors, with the Fed's policy shift playing a key role. Market volatility remains high, and investors should remain cautious and closely monitor market dynamics. The future direction and trajectory of the cryptocurrency market remain uncertain, but its long-term potential remains promising.