Losses in bitcoin (BTC) and other major cryptocurrencies extended to their third consecutive day, as risk-off behavior following this week’s FOMC meeting and overall profit-taking contributed to strong market sentiment.
BTC fell 4.2% in the last 24 hours, and Solana’s SOL, ether (ETH), and Cardano’s ADA fell as much as 9%. Dogecoin fell the most, with a drop of 11%, extending weekly losses to over 21%.
The CoinDesk 20 (CD20), an index of the largest tokens by market cap, fell 5.5%. That extended to the futures markets, with more than $890 million in long and short liquidations in the last 24 hours.
The reaction to a hawkish FOMC stance triggered a sharp sell-off across all risk assets on Wednesday and Thursday. The Nasdaq plunged 3.5%, the S&P 500 fell 2.9% and BTC fell more than 6% since the meeting, where Fed Chair Jerome Powell hinted at only a few rate cuts. in 2025.
Powell later said in a post-FOMC press conference that the central bank was not allowed to hold bitcoin under current regulations, in response to a question about President-elect Donald Trump’s strategic reserve pledges.
Traders at Singapore-based QCP Capital attributed the market decline to overly bullish sentiment over the past month.
“While it’s easy to blame the sell-off on the Federal Reserve’s aggressive tapering, we believe the root cause of the morning crash is excessively bullish market positioning,” QCP said in a Telegram broadcast.
“Since the election, risk assets have enjoyed an impressive one-sided run, leaving the market extremely vulnerable to any shock. While the Fed’s 25 basis point cut was expected, the source of the panic can be attributed to the dot plot, which was revised downward. Due to persistent inflation, the Federal Reserve now projects two rate cuts by 2025, compared to the market consensus of three rate cuts,” QCP added.
A drop in bitcoin comes amid a bullish period for the asset.
December tends to be historically bullish for bitcoin in a move colloquially called the “Santa Claus Rally.” Data from the past eight years shows that bitcoin has ended December in the green six times since 2015, ranging from at least 8% to as much as 46% (in the outlier year of 2020).
Seasonality is the tendency of assets to experience regular, predictable changes that repeat each calendar year. While it may seem random, possible reasons range from profit-taking around tax season in April and May, which triggers drawdowns, to generally bullish November and December, a sign of increased demand ahead of the holiday season.
