The path through crypto trading is thorny. Anyone who has experienced an entire crypto cycle knows that even in a bull market, not everything is always positive, and corrections are a regular occurrence. These corrections reshape the structure of investors, giving tokens a new chance for further growth. However, when such an event occurs, and the value of your portfolio drops by 30% within days, everyone starts to wonder: what if this cycle is different? What if this wasn’t just another “bear trap” but the beginning of a significant crash and the start of a bear market?
We’ve summarized all the market details and the events leading up to this drop. This article will try to conclude where we stand and what we can expect in the coming period.
Crypto Drop Following the FOMC Meeting
On December 18, all eyes were on the Federal Reserve’s Federal Open Market Committee (FOMC) meeting, awaiting a decision on the interest rate in the United States. Forecasts predicted a reduction of 25 basis points (BPS), where each point represents 0.01% of the interest rate. With such a reduction, the interest rate would decrease by 0.25%. Even the well-known crypto site Polymarket, which offers online betting on various events, anticipated this outcome, which ultimately turned out to be accurate.
That day, the FED announced the expected information regarding the BPS. Still, the rest of the news was unfavorable for crypto and the stock market investors. Based on updated economic projections, indicators emerged suggesting an increase in inflation in the coming year and a potential rise in unemployment.
Given these factors, the FED announced during the presentation that there would be only two interest rate cuts in 2025. This approach aims to curb inflation and preserve the economy in the long term. However, it caused significant fluctuations in the crypto market in the short term, as such news typically triggers adverse reactions, and historically, these announcements have proven detrimental to risky assets.
This led to a two-day “bleeding” in the market, during which Bitcoin dropped by 11%. As usual, altcoins suffered the most, with most losing around 30% of their value and some even more. While the market has slightly recovered, mild panic still lingers five days after the drop, as it’s unclear whether another “pullback” awaits. This crash resulted in the liquidation of over 380,000 traders, amounting to a staggering $1,270,000,000—one of the most significant losses since the market crash in August this year.
Other Negative Factors That Contributed to the Drop
Once again, it has been confirmed that misfortune rarely comes alone. Shortly after the news about interest rates, rumors began circulating about a potential U.S. government shutdown. The reason was the possible rejection of a spending bill, criticized by many, including one of the most influential figures of our time, Elon Musk. Naturally, this sparked panic in an already shaken market.
Finally, another factor that amplified fears was the expiration of many options. Not only for Bitcoin and Ethereum but also for futures tied to stocks, indices, and ETFs. This generally increases market volatility and opens the door to manipulation. Option expiration refers to the period when financial contracts (options) allow the purchase or sale of assets at a predetermined price ending and must be settled. This often leads to sell-offs, making it crucial to track dates when significant amounts are set to expire.
Considering everything that has transpired recently, we might even be relieved that the drop wasn’t significantly worse. However, until we see green candles again, we cannot guarantee that the downturn is over.
Positive Indicators in The Market
It’s not all doom and gloom. This continuation of the article highlights the positive developments that could shape the market in the coming period. Let’s start with the theory of cycles and history, which often repeats itself in a somewhat adjusted form.
Everything we wrote at the beginning of the year about how 2024 might unfold has largely come true. All that given that many were skeptical that Bitcoin would break the magical $100,000 mark. The coming year brings several highly positive developments for crypto, which could act as catalysts for further growth. Chief among these is the inauguration of Donald Trump as the President of the United States. Also, the mere discussion of creating Bitcoin Federal Reserves is a significant development. Coupled with Trump’s statement that he will do everything in his power to make America the number one crypto nation. Consequently, the start of next year could be highly bullish.
What History Teach Us?
Looking back at previous cycles, we’ve seen similar corrections. During the last cycle, the altcoin market experienced a significant pump of over 120%, followed by a nearly 35% drop. This correction ultimately catalyzed one of the largest Alt seasons, and we hope for a repeat this time. These corrections can often be beneficial. After reshaping ownership structures and the adjustments a dip brings, the market looks much healthier and ready for new growth.
The good news for the crypto market doesn’t stop there—quite the opposite. Several other highly positive indicators suggest what might lie ahead in Q1 2025. For instance, Bitcoin’s four-hour RSI index is at its lowest point in several months, currently sitting at 21. This signals that Bitcoin has been “oversold” recently, making its recovery highly plausible in the near future. The last time this happened was in October 2024. Then BTC was priced around $62,000—and we all know what followed.
The demand for Bitcoin and crypto, in general, is consistently increasing. A growing number of newcomers is expected to enter the market, as seen in previous cycles. Perhaps the best indicator of this trend is that a single investor transferred a staggering $1,200,000,000 USDC to a spot exchange in one transaction during this recent dip. We’ve often emphasized that in market conditions like these. Dips are ideal opportunities to accumulate your favorite projects at more favorable prices. Obviously, this investor demonstrated that point in the best possible way. Notably, shortly after this transaction, the market began to recover. This seasoned player recognized the strength of BTC and ETH support at the then-prevailing levels of $92,000 and $3,100, respectively.
Conclusion
We’ve summarized some of the negative outcomes from the recent period and the positive indicators. Now it’s time to conclude what we can expect in the upcoming period, particularly in Q1 2025, as the possibility of an extended Bull Run until November 2025 is still a long way off. However, we must also consider the adverse events, such as the significant ETF outflows during this period and the potential for selling pressure. At the $100,000 price point, early investors are sitting on massive profits, which they will likely look to realize at some stage.
Globally, positive factors prevail, and we believe this correction’s bottom has been reached. Starting after the New Year, we expect a new growth cycle. However, caution is advised in that period, as it’s uncertain whether we’ll have the chance to correct mistakes after Q1 2025.
Finally, we always recommend making your own decisions about buying and selling. Articles like this and others should be seen as friendly suggestions, not as triggers for action. Additionally, create a clear profit-taking plan and stick to it. When altcoins begin their steep climbs, adrenaline can easily overpower logic, and in chasing higher gains, you risk losing what you already have and becoming stuck in the next four-year cycle.
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FAQ
What is FOMC?
The FOMC (Federal Open Market Committee) is a fundamental component of the United States Federal Reserve (Fed) responsible for making decisions on monetary policy. The FOMC manages the federal funds rate and determines measures such as buying or selling government securities, influencing liquidity within the financial system.
Why does the announcement of a smaller interest rate cut hurt the market?
When the Fed signals a reduction in interest rates, it typically stimulates market and investment growth, as borrowing money becomes “cheaper.” However, fewer rate cuts indicate that the Fed is unwilling to stimulate further the economy, which generally negatively affects riskier investments, such as stocks or crypto. This is why markets react negatively to such announcements. Nonetheless, this approach helps slow down inflation in the long run.
What maximum price can we expect Bitcoin to reach in this Bull Run?
Many have considered the magic number for Bitcoin’s maximum value to be $100,000. However, since the most well-known cryptocurrency reached this value already in 2024, expectations have risen. Our assessment suggests that Bitcoin could get around $120,000 in Q1 2025, though we wouldn’t mind being wrong and seeing this figure go even higher.
What is Bitcoin RSI?
Bitcoin RSI (Relative Strength Index) is a technical indicator used in financial market analysis to measure the speed and change of price movements to assess overbought or oversold conditions in the Bitcoin market. If the index is below 30, the market is “oversold,” suggesting that a price increase may be expected soon.
Is it better to buy Bitcoin or Ethereum at this moment?
Bitcoin leads every cycle, and only when it reaches a value that even “whales” find expensive to buy money flows into Ethereum and other altcoins. Since Bitcoin has already experienced significant growth, while Ethereum is still below its ATH from the previous cycle, we believe investing in the second most popular cryptocurrency may offer a better return.
