Today’s main drivers of Bitcoin’s price action are the updates from the Federal Reserve’s interest rate decisions, on-chain metrics, and the crypto market trends.
Bitcoin (BTC) recently saw a sharp price decline in the wake of an impending Federal Reserve interest rate decision. The leading digital currency was down 4.75% off its record high of $108,365 and trading at about $104,175 at the time of writing.
This price trend suggests cautious sentiment has taken over due to macroeconomic events.
Bitcoin Price Drops Due to Sell-the-News Sentiment
One of the leading drivers behind the collapse in the price of the leading digital currency is an expected quarter-point interest rate cut by the Federal Reserve. Following last week’s CPI data for November, which revealed inflationary pressures, BTC’s price spiked by 13.20%, but its rally quickly disappeared as traders adopted a sell-the-news strategy.
Analysts at K33 Research, Vetle Lunde and David Zimmerman, believe that the less-than-clear path of future Fed decisions adds to the market volatility. They said the central bank may not cut rates in the upcoming months, creating further uncertainty and affecting Bitcoin’s momentum during the holiday season.
Profit-Taking in the Crypto Market and On-Chain Indicators
Bitcoin’s price action also depends on some on-chain metrics, such as the Stock-to-Flow Reversion (S2F) indicator. Historically, when the S2F ratio tops 2.5, it signals cautious profit-taking because the market is approaching a possible correction.
The ratio stands at 2.5, ranging from 2.47 to 2.27 between December 16 and December 17, indicating increased selling pressure among investors. CryptoQuant analyst DarkFrost stresses the need to take profit strategically at these levels. This means traders are taking profits at around 2.5 and beyond 3.
Technical Analysis Suggests Correction
From a technical viewpoint, the fall of Bitcoin’s price is developing alongside weakened gauges. A bearish divergence occurs on the daily chart as rising prices contrast with the declining RSI.
These divergences often lead to corrections, signifying waning upward momentum. Bitcoin trades in a rising wedge, marked by two converging but ascending trendlines.
The sharp decline towards the lower trendline could push BTC’s price further down. According to analysts, rising wedges are a type of bearish reversal pattern and could lead to the cryptocurrency’s price decline to $92,000.
The price action, however, aligns with Bitcoin’s 50-day EMA. The recent drop has triggered massive liquidations across the crypto market.
According to on-chain data, more than $420 million worth of positions were liquidated in just 24 hours, affecting 165,326 traders. Bitcoin accounted for $76.7 million of those liquidations, with long traders taking the biggest hit.
Other notable cryptocurrencies that faced massive liquidations include Ethereum ($55.54 million), Dogecoin ($13.16 million), and XRP ($21.91 million). These liquidations suggest that a ripple effect from Bitcoin might be taking place in the market.
Macro Events and Crypto Market Sentiments
While a 25-basis-point rate cut is widely expected, the Fed’s commitment to further cuts in 2025 is not as certain. Arthur Hayes, a former CEO of BitMEX, also expects heavy turbulence in the crypto market at key geopolitical events, such as Donald Trump’s oath-taking ceremony in January 2025.
Against a backdrop of market ups and downs, a recent Coinbase study has thrown light on the market trends that will shape the face of crypto in 2025. These include a surge in stablecoin use, tokenization of real-world assets, and regulatory changes.
The adoption of stablecoin has dramatically increased as transaction volumes crossed $27 trillion in 2024. Meanwhile, RWA tokenization has grown by 60% to $13.5 billion; it could streamline financial transactions and expand into sectors like real estate and commodities.
US spot Bitcoin ETFs’ success has reshaped institutional demand for the leading cryptocurrency, and there would be more inflows into these products. Hence, there’s a possibility for further growth in the crypto market beyond the temporary ups and downs.
Nevertheless, the interplay of macroeconomic factors, technical indicators, and market sentiment will continue to shape BTC’s price trajectory.
