The Federal Reserve's actions on December 10, 2025, had a huge impact on the cryptocurrency market, once again proving that the 'invisible hand' behind the price trends in the cryptocurrency market is actually the monetary policy of the Federal Reserve. Although the Federal Reserve's rate cut brought the long-awaited third rate cut of the year, lowering the federal funds rate by 25 basis points to 3.5%-3.75%, the market's expected dovish rebound did not occur. On the contrary, the Federal Reserve's hawkish expectations triggered a market decline, causing the price of Bitcoin to drop below $86,000, a decrease of over 18% from the peak in November.

This is not just an ordinary interest rate vote. This meeting revealed serious divisions within the Federal Open Market Committee, with three dissenting votes, the worst split since September 2019. For cryptocurrency optimists, the worse news is that the Fed's current forecast shows fewer interest rate cuts in 2026 than previously expected—this severe shock has severely impacted all risk assets globally. The message conveyed is clear: inflation rates remain stubbornly at 2.8%, partly due to the lingering effects of tariffs, and the Fed's easing cycle is expected to end much earlier than the market anticipated.

Why is the cryptocurrency market experiencing such wild fluctuations?

Bitcoin's initial reaction to the Fed's hawkish stance was brutal. Within hours of Powell's speech at the Jackson Hole Economic Symposium, Bitcoin's price plummeted from around $92,000 to near the critical point of $85,000, triggering massive leveraged liquidations. As of December 18, Bitcoin was trading at around $86,000, a stark contrast to the astonishing price of $106,000 just weeks ago. Ethereum dropped to $2,827, and Ripple fell slightly over 3.5%, trading at $1.86.

The crash has not stopped at the spot market. Derivatives traders have also been severely impacted, with over $440 million in leveraged long positions liquidated in just 24 hours on December 15. Longs betting on price increases lost as much as $355 million, which is staggering. The liquidation amount for Bitcoin was $128 million, while for Ethereum it was $89 million.

"What is the culprit? The persistent correlation between cryptocurrencies and traditional risk assets (such as tech stocks). When the Fed clearly signals the end of easy monetary policy, speculative investors rush to sell their favored investments. After the Fed announced its policy, the S&P 500 fell by 3%, the Nasdaq dropped by 3.6%, and Bitcoin along with altcoins also declined. Nvidia, the AI darling that recently helped propel cryptocurrency prices, saw its stock drop more than 13% from recent highs, exacerbating the risk-off sentiment around Bitcoin and cryptocurrencies."

Inflation, tariffs, and macroeconomic headwinds

Powell's observations on inflation are also quite pessimistic for cryptocurrency traders, who may expect the government to adopt dovish policies in 2025. Powell noted, "Our preferred measure—the Personal Consumption Expenditures Price Index—showed an inflation rate of 2.8% in November, above our 2% target." The core inflation rate has also continued to rise, reaching 2.6%, though below expectations, it remains concerning.

Compounding the issue is the tariff policy implemented since the Trump administration, which has also posed challenges. Powell has directly attributed high inflation to tariffs and stated that removing them would help control price increases around 2%. However, given the current political deadlock, high inflation is likely to persist until 2026, which will force the Fed to maintain high interest rates.

This is undoubtedly a nightmare for cryptocurrencies, as it signals a macroeconomic landscape dominated by high real interest rates, high inflation, and slowing economic growth. The Fed's December Beige Book emphasized the slowdown in the labor market and economic growth, but the Fed remains forced to stand pat due to concerns about inflation. For Bitcoin, which performs best in low-rate and high-liquidity environments, this structural resistance may suppress its price increases in the coming years.

Bitcoin ETF: Institutional indecision and continued outflows

For cryptocurrency enthusiasts, the most concerning trend may be the continuous outflow of funds from Bitcoin spot ETFs. Since its launch in January 2024, Bitcoin spot ETFs have been an important part of institutional adoption strategies. As a leader in the Bitcoin spot ETF space, BlackRock's iShares Bitcoin Trust (IBIT) has set a record for the longest consecutive redemption streak in history, with redemptions exceeding $2.7 billion for several weeks. On December 15, the total net outflow of Bitcoin ETFs reached $428 million, with Fidelity's FBTC seeing an outflow of $231 million and ARK's ARKB facing an outflow of $51 million.

On December 10, ETF data showed a brief reprieve, with $251 million flowing in that day, mainly contributed by BlackRock's $177 million and Fidelity's $28 million. However, this relief did not last, as selling pressure persisted in the following days. The trend is clear: investors are reducing risk rather than increasing it, which is a bearish signal for Bitcoin, as it may struggle to reclaim over $100,000 without a fundamental change in the macro environment.

DeFi and altcoins have been severely hit.

The sell-off triggered by macroeconomic factors has also dealt a heavy blow to the decentralized finance (DeFi) sector. The total value locked (TVL) in DeFi protocols plummeted from a peak of $172 billion in early October to around $114 billion, a staggering drop of 34% in just over two months. The Ethereum network maintains its dominant position in DeFi, still accounting for 55% of the total locked value, but its absolute value has significantly decreased, as the price of ETH fell from over $3,500 to below $3,000.

However, despite Solana increasing its DeFi market share from 2.5% to 7.3% over the past year, its situation is not much better. On December 18, SOL was trading at $123, down over 44% from November's high of $222. This fast blockchain network, once hailed as the "Ethereum killer," now faces macroeconomic headwinds like the entire cryptocurrency market.

All altcoins have declined. XRP was once highly anticipated to receive regulatory support, but has fallen 27% this year and dropped 3.5% in the past 24 hours. Mainstream DeFi tokens have all seen declines exceeding 4%, most hitting several-month lows. As market participants rush to sell altcoins and other risk assets, the total market capitalization of altcoins has shrunk from nearly $3 trillion to the current $2.91 trillion.

Stablecoins: The only silver lining

However, amidst all this destruction, the price momentum of stablecoins remains strong, reaching a historic high of $309.83 billion in market capitalization on December 15, a 50.95% increase since January 2025. Tether (USDT) leads with a 60% market share, with a record market capitalization of $183 billion, followed closely by USD Coin (USDC), which holds a 25% market share with a market capitalization of $74 billion. The rapid growth in the supply of stablecoins reflects that funds have not left the cryptocurrency market; they have simply retreated to a secondary position under the dollar peg mechanism.

This creates an interesting paradox: despite the significant devaluation of Bitcoin and Ethereum, the infrastructure has absorbed record funds in the form of stablecoins. DeFi platforms, perpetual exchanges like Hyperliquid, and cross-border payment systems all rely on stablecoins for support. Standard Chartered previously boldly predicted that by 2028, the stablecoin market size would reach $2 trillion, which now seems plausible, especially with changes in the regulatory environment.

Next: How to cope with the volatility in December

For traders and investors, this is an unknown journey. Bitcoin is currently testing the critical price level of $85,000, and if it fails to break through, prices could retreat to around $75,000, or even as low as $65,000. In previous cycles, whales heavily accumulated around $65,000 to $70,000. Observations show this is a very delicate price point, as there is almost no room for maneuver between market prices and the critical bottom around $65,000 to $70,000.

However, there are some reasonable hopes that may provide a glimmer of comfort. Bitcoin's real market value has remained above the historic high of $1 trillion, indicating that long-term holders have not given up. Whales continue to accumulate during price dips, and this behavior has historically been associated with bottoms rather than tops. If Bitcoin can hold the critical price level of $85,000 and the Fed signals dovishness in early 2026, prices could rebound to $100,000.

But the good news is that the CPI data released in November showed that the overall inflation rate fell to 2.7%, the lowest level since July, while the core inflation rate also dropped to 2.6%, far below the previously predicted 3%. This mild inflation news triggered a sudden spike in Bitcoin's price on December 17, surpassing $89,000; however, this surge did not last long due to traders' concerns about whether the Fed would further ease monetary policy.

Conclusion: A sobering reality

The Fed's stance in December is undoubtedly a wake-up call for the cryptocurrency industry: the era of easy money is over, and the cryptocurrency world needs to adapt to a new environment of higher real interest rates, high inflation, and institutional risk aversion. Bitcoin's price plummeted from $106,000 to $86,000, indicating the industry's extreme sensitivity to overall macroeconomic trends; the historic outflow of funds from cryptocurrency ETFs reflects the industry's tendency to hedge risks rather than double down. If the cryptocurrency market wants to regain its optimistic sentiment, it either needs significant policy adjustments from the Fed (which seems unlikely in the short term) or needs to decouple the cryptocurrency space from other risk assets (which has proven difficult so far). Until then, the last few weeks of 2025 are bound to be a wild ride, with significant waves of liquidations and volatility in the upcoming December market turbulence.
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