A Hit to Bitcoin

The price of Bitcoin dropped significantly due to a hawkish Federal Reserve estimate for 2025. Concerns about higher-than-expected unemployment and inflation have made investors wary of riskier assets like cryptocurrencies. This sentiment led to a 6.2% fall in Bitcoin’s price, with Ethereum and Dogecoin experiencing even steeper declines.

Federal Reserve decisions, such as lowering or maintaining interest rates, influence market sentiment. While rate cuts might seem favorable, they can also raise concerns about inflation and unemployment. This uncertainty often impacts cryptocurrencies, which tend to behave like traditional risk assets under such conditions.

Rising bond yields, like the 10-year government bond increasing 6 basis points in a day, can make traditional investments more attractive compared to cryptocurrencies. This shift diverts funds away from high-risk assets like Bitcoin and other digital currencies, leading to market declines.

Higher interest rates typically reduce the appeal of growth stocks and cryptocurrencies by increasing borrowing costs and offering better returns on safer investments like bonds. This trend was observed in 2022 and is resurfacing in the current market.

The recent crypto surge was largely driven by speculative claims, election-related rumors about crypto-friendly legislation, and fear of missing out (FOMO). As these factors wane, the market correction indicates that the rise may not signal sustainable long-term growth.