Bitcoin Price Drops to $94K: Fed Signals and DOJ Sales
Bitcoin Prices Fall as Fed Signals Hawkish Stance and DOJ Sells Bitcoin
Bitcoin extended its sharp decline on Thursday, continuing a streak of losses as weakening risk sentiment continues to drive the downturn.
Signals from the Federal Reserve to keep monetary policy tight and the selling of a significant quantity of coins by the U.S. government added to pressure on the world’s largest cryptocurrency.
Market Context: Bitcoin’s Losses Amid Risk-Off Sentiment
Bitcoin recently fell amid overall market turbulence, as traders start to worry more about the outlook for Federal Reserve monetary policy.
Earlier in the year, the cryptocurrency rallied significantly on hopes for easing interest rates, but those gains have now been largely washed away as Bitcoin tracks losses among other risk-driven assets.
Traders are now preparing for interest rate cuts in 2025 to be slower than expected, according to the Fed’s December meeting minutes. This hawkish sentiment has spooked investors, reducing the appetite for speculative assets like cryptocurrencies.
Broader crypto markets also lost, but Bitcoin faced outsized pressure on Thursday due to reports of impending coin sales by the U.S. Department of Justice (DOJ).
At 00:56 ET (05:56 GMT), Bitcoin dipped 2.1% to $94,471.1 after earlier trading as low as $93,323.1 in the session.
DOJ Bitcoin Sales: A $6.5 Billion Overhang
The Department of Justice recently got court approval for the sale of about 69,370 Bitcoin, with an estimated worth of around $6.5 billion.
Those tokens were confiscated during a crackdown on the Silk Road marketplace in 2014-a notorious online black market.
The news has dented much of the recent momentum in Bitcoin as this massive amount of coins entering the market represents a big selling pressure for the cryptocurrency.
DOJ sales of confiscated crypto holdings have caused this kind of disruption in the past.
Coinbase (NASDAQ: COIN) has a contract with the DOJ to handle all government crypto sales and is therefore likely to process the sale.
Adding to the market’s unease is that these sales have dashed hopes of the DOJ converting its Bitcoin reserves into a strategic national asset under the incoming administration of President Donald Trump.
Trump’s Bitcoin Strategy: A National Reserve?
President Trump has previously advocated for a national Bitcoin reserve to be part of his economic policy. However, how this can be done has not been elucidated.
DOJ’s decision to sell its confiscated Bitcoin instead of holding it as a strategic asset underscores the lack of clarity of Trump’s intentions regarding cryptocurrencies.
While some crypto enthusiasts had hoped that Trump’s policy might give legitimacy to Bitcoin, the government’s move to sell off the tokens highlights a lack of alignment in this strategy.
Hawkish Federal Reserve Signals Impact Crypto Markets
While those factors are specific to Bitcoin, broader hawkish Federal Reserve signals had weighed on the cryptocurrency market more broadly. In fact, the Fed minutes revealed plans for a slower pace of interest rate cuts in 2025.
Fed policymakers cited resilience in the U.S. economy and concerns over persistent inflation as reasons for their cautious approach. Inflation is expected to remain elevated, partly due to expansionary and protectionist policies anticipated under the Trump administration.
Higher interest rates typically weigh on speculative assets like cryptocurrencies by dampening investor appetite for risk. As such, the Fed’s stance has eroded risk sentiment across the crypto market.
Altcoins Also Mixed
Thursday’s selloff was largely placed on Bitcoin’s shoulders, but altcoins had mixed results.
Ether (ETH): The native Ethereum token stabilized at $3,328.41 after it had taken sharp losses earlier in the week.
XRP: Ripple’s XRP token rallied 2.2% to $2.3478 after a few days of decline.
SOL, ADA, and MATIC: These altcoins recorded losses ranging from 0.4% to 6%.
Dogecoin (DOGE): Among meme tokens, DOGE dropped 3.1%, reflecting broader weakness in speculative assets.
Implications for Bitcoin and the Crypto Market
A challenging environment continues for Bitcoin and other cryptocurrencies on hawkish Fed signals coupled with the DOJ selling Bitcoins. This is going to put heavy weightage selling pressures from the $6.5 billion Bitcoin DOJ liquidation over prices in the near term.
On the other hand, the Fed’s policy stance presents a macroeconomic backdrop that is less favorable for risk-driven assets. High interest rates are expected to persist and reduce liquidity while discouraging speculative investments in cryptocurrencies.
What’s Next for Bitcoin?
Bitcoin’s recent performance reveals how sensitive the cryptocurrency is to both macroeconomic factors and market-specific developments. In the short term, traders and investors will continue to watch for:
- The DOJ’s Bitcoin Sale: The timing and execution of the sale will likely impact Bitcoin’s short-term price movements.
- Federal Reserve Policy: Any updates on interest rates or inflation could further influence risk sentiment.
- Trump’s Crypto Policies: As Trump takes office, his administration’s stance on Bitcoin and blockchain technology will shape market expectations.
While the future for Bitcoin in the long run depends on its adoption and the advancements in technology, the immediate near-term situation would seem to imply continued volatility.
The multiple pressures on the cryptocurrency market were underscored by Bitcoin’s fall to $94,471.1 on Thursday. The selloff has reversed much of Bitcoin’s earlier gains this year, spurred by hawkish signals from the Federal Reserve and the DOJ’s plans to sell $6.5 billion worth of Bitcoin.
This broader crypto market is characterized by cautious investor sentiment as reflected by mixed altcoin performance.
These months ahead will put to the test the resilience of Bitcoin and other cryptocurrencies, navigating challenges of macroeconomic factors and government actions that have taken the trajectory of the cryptocurrency market to higher levels of volatility for now.
