After reaching unprecedented heights earlier this month, the volatility of Bitcoin has again come into focus as the cryptocurrency experiences a significant decline. Bitcoin, which soared to approximately $126,251 on October 6, has now plummeted about 25%, trading around $95,000 on Monday morning. This downturn follows a significant drop of around 10% last week and a slight recovery from lows near $93,000 on Sunday.
Market analysts attribute this sharp decline to a shift in investor sentiment regarding the monetary policies of the Federal Reserve. With the recent government shutdown lasting 43 days, key data on jobs and inflation, which typically inform Fed decisions, remained unavailable. Fed Chair Jerome Powell recently emphasized that further interest rate reductions at the upcoming December meeting are not assured, offering a cautious stance on monetary policy.
Boston Fed President Susan Collins echoed these sentiments, expressing that it may be wise to maintain current policy rates for an extended period in order to address the risks associated with inflation and employment in an unpredictable economic climate. The CME FedWatch tool, which gauges the likelihood of a rate cut, indicated a 43% chance for December on Monday—down from over 53% just a week earlier.
Deutsche Bank analyst Henry Allen cautioned against underestimating the repercussions of this changing narrative from the Federal Reserve. He noted that the most significant sell-offs in the last decade often coincided with the Fed becoming more hawkish, leading to rate hikes. The recent withdrawal of about $1.8 billion from Bitcoin and Ethereum exchange-traded funds (ETFs) further suggests a risk-averse shift among large institutional investors. This outflow included a staggering $870 million from Bitcoin-related exchange-traded commodities (ETCs) on Thursday alone.
According to Rachael Lucas from BTC Markets, these transactions signal an apparent retreat from bullish positions among major investors. Moreover, confidence in Trump’s efforts to position the United States as the “crypto capital of the world” has also waned. Following Trump’s recent announcement of potential tariffs of 100% on Chinese imports, market sentiment suffered another blow, triggering widespread liquidations across major cryptocurrencies.
Stephen Innes from SPI Asset Management remarked that the initial excitement surrounding Bitcoin, boosted by the Trump administration’s pro-crypto policies, appears to have faded. He added that the cryptocurrency landscape is reacting to broader U.S. economic signals, suggesting that upcoming economic data releases will be crucial in shaping future monetary policy decisions by the Fed. As the market braces for this data, investors are left to navigate the uncertainties ahead.
