Bitcoin’s Price Struggles: Inflation Data and Fed’s Hawkish Stance

Bitcoin surged over $40,000 from a pre-US election low of $66,835 to a peak of $108,353. However, the Fed’s "in-line" 25bps rate cut was overshadowed by a hawkish shift in its outlook, with fewer-than-expected rate cuts projected for 2025. This shift triggered a sweeping sell-off in risk assets, including Bitcoin.

Bitcoin pulled back sharply, reaching a low of $92,232, approximately 14.5% off its recent peak. Large-cap altcoins also took a hit, some suffering losses of over 30%, leading to total liquidations exceeding $280 million. Solana (SOL) fell back to around $180, nearing pre-election levels, while Ethereum (ETH) dropped more than 20% from $4,000 to $3,300. Even Dogecoin (DOGE), the world’s leading memecoin, plunged over 50% from $0.48 before stabilising above $0.30.

What Triggered Bitcoin’s Market Pullback?

Post-election optimism inflated a bubble in risk assets, pushing prices higher in a one-sided rally. This overextended market left investors vulnerable, making it easy for the Fed’s hawkish stance to burst the bubble and trigger a sharp correction. The approval of spot Bitcoin ETFs in January 2024 sparked a dramatic 121% YTD surge for Bitcoin. Yet, the crucial question remains—can ETF-driven demand push Bitcoin to fresh all-time highs and maintain prices above $100,000 in the near term?

Macro Pressures: Challenges for Bitcoin in 2025

Bitcoin faced persistent pressure as investor caution remained high amid macroeconomic uncertainties and hawkish signals from the Federal Reserve. The recent pullback coincided with the Fed’s announcement that only two interest rate cuts would occur in the upcoming year rather than the expected faster pace of easing. With inflation remaining stubbornly high, interest rate expectations remain elevated. Two-year yields are at 4.3%, while longer-term rates stay high. Combined with reduced liquidity, these factors could further weigh on risk assets, including cryptocurrencies.

Rising yields, a resilient economy, a stronger dollar, and tighter refinancing conditions are expected to pressure Bitcoin’s momentum as we head into 2025. These macro factors may weigh heavily on the cryptocurrency’s near-term prospects. The $85,200 is the critical support level on a daily timeframe. A break below this key level could signal the loss of bullish momentum. This highlights the importance of caution as both macro conditions turn less favourable and technical risks increase, which could lead to a sharp dip.

Can Catalysts Counter Bitcoin’s Headwinds?

Despite the challenges, several potential catalysts could drive Bitcoin demand. A pro-crypto government under Trump, clearer regulations, a surge in BTC ETF issuers, and the introduction of BTC ETF options and smart beta BTC ETF products may all help foster a positive narrative and attract fresh demand. These developments could counterbalance the macro pressures and technical risks, providing a potential foundation for Bitcoin’s recovery.

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