Bitcoin’s notorious volatility returned with a force on Friday, tumbling in a matter of hours to around $92,000 from close to $98,000 the day before, and then just as quickly recouping its losses.
As of press time, the largest cryptocurrency was changing hands just below $97,000. The BTC price remains well off the record high around $108,000 reached earlier in the week.
“The overnight dump was so intense it even made me question this bull market,” Alex Krüger, founder of crypto advisory firm Asgard, wrote on X. “All we had is spot-driven panic selling that went beyond what I envisioned.”
He said that the market appeared to turn upward, citing a U.S. inflation report published early Friday showing softer-than-predicted inflation in November — potentially signaling that the Fed might be able to keep monetary policy dovish for longer than investors expected. Generally speaking, bitcoin has historically benefited when soft inflation readings allow the central bank to maintain looser monetary policy.
The U.S. Personal Consumption Expenditures (PCE) price index rose 0.1% month-over-month and 2.4% year-over-year, versus an expected climb of 0.2% month-over-month or 2.5% year-over-year, according to Barrons.
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In the last 24 hours, the crypto market has shed 2% of its total valuation to $3.5 trillion, with memecoins leading market losses, according to data from CoinGecko.
Several major memecoins were among the biggest losers on Friday, with frog-themed PEPE, penguin-inspired PENGU, and dogwifhat (WIF) each declining by double-digit percentages, before also recovering.
The Fed Impacting Crypto Markets
The market’s selloff this week came after U.S. Federal Reserve officials on Wednesday indicated that only two rate cuts were likely in 2025, when the expectations were for more than that.
Fed Chairman Jerome Powell’s comment that, “We’re not allowed to own bitcoin,” may have added to the bearishness. President-elect Donald Trump has reinforced his pledged support of the U.S. government building a strategic bitcoin reserve, although that could theoretically be created outside of the auspices of the central bank.
“The Fed also acknowledged that uncertainty surrounding Trump’s policies prevents them from taking further action or providing longer-term guidance,” wrote Kelly Ye, portfolio manager at liquid investment firm Decentral Park Capital, in a message to Unchained over Telegram.
According to Ye, the market is repricing macroeconomic and policy risks, with traditional financial investors pulling back to wait for additional policy clarity from the incoming Trump administration. “Caution prevails before investors take on more risk,” she added.
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Omer Goldberg, the founder of risk management firm Chaos Labs, also argued the Federal Reserve signaling slower interest rate cuts in 2025 triggered the recent market crash. “Additionally, sharp pullbacks are typical during bull market spikes, reflecting patterns seen in past cycles. This market volatility underscores sensitivity to economic signals and investor sentiment shifts,” Goldberg told Unchained in Telegram.
Retail and Institutional Investors Playing a Role in Downturn
Ogle, a long-time pseudonymous crypto trader who is also the founder of blockchain network Glue, pointed to the activity of retail and institutional investors as the cause for the dip.
“Retail sometimes dumps around Christmas for tax-loss-harvesting reasons, and institutional investors often do what’s called fund rebalancing at the end of the year,” Ogle said to Unchained.
While crypto analytics firm Santiment noted on X that recent crypto discussions about buying the recent dip have been enthusiastic, Maksim Tkachuk, who works on product at Santiment, told Unchained that the market is still in a correction phase, arguing that the market bottom has not been formed, as shown by the amount of stablecoin debt and ongoing social sentiment.
Total borrows stand at $24.6 billion, a level not seen since February 2022, per onchain intelligence firm Artemis.
“There’s been a lot of stablecoins taken out as debt in DeFi protocols,” Tkachuk wrote to Unchained. “I’m waiting for that to unwind a bit before trying any long positions. Looks like we’re not there yet.”.
U.S.-listed spot bitcoin exchange-traded funds on Thursday ended their record-long streak of 15 consecutive days of investor inflows.
