The steep drop is attributed to a confluence of factors, including the Federal Reserve's recent hawkish stance on interest rates and broader market jitters
Bitcoin (BTC) price action took a steep downturn last week, dropping over 10% in just seven days. The downturn began after the Federal Reserve announced its decision to raise interest rates again at its December 17 meeting.
In a bid to curb inflation, the central bank opted for a smaller rate hike of 25 basis points, down from 50 basis points in the previous meeting. However, the Fed also signaled that it would maintain higher rates for an extended period to bring inflation down to its target of 2%.
The statement had a significant impact on financial markets, sparking a shift away from risky assets. Cryptocurrency exchange-traded funds (ETFs) also saw a record net outflow last Thursday, following comments from Fed Chair Jerome Powell indicating that rate cuts in 2025 would be more gradual than some had anticipated.
Data from European fund manager CoinShares showed that investors withdrew a staggering $576 million in a single day, bringing total outflows to $1 billion by Friday. This shift occurred despite a strong week of inflows, with investors pouring $3.2 billion into crypto funds in the week prior.
According to analysts, the rising interest rates could continue to put pressure on high-risk assets. In the past, Bitcoin has performed better in lower-rate environments, which tend to encourage speculative investment in cryptocurrencies. As the market now braces for a less accommodative monetary policy, some traders are shifting their focus to alternative digital assets and decentralized finance (DeFi) products in search of potential gains.
While Bitcoin usually attracts the bulk of investor attention, data reveals a gradual rotation into alternative tokens and related investment products. CoinShares reported that Ethereum-focused funds saw $51 million in inflows last week, while Solana-based products experienced outflows of $8.7 million. This preference for Ethereum indicates that some investors are diversifying away from Bitcoin in the midst of ongoing market turbulence.
Despite the recent downturn, Bitcoin remains the key barometer for the crypto market. Its volatility and price direction largely determine the overall sentiment toward digital assets. If Bitcoin stabilizes in the coming days, positive market momentum could resume, especially if investors believe the impact of Fed policy decisions will be short-lived.
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