The crypto market witnessed a significant downturn as Bitcoin briefly dropped below $100,000 and the crypto fear and greed index shifted from 88 (extreme greed zone) to 69. On Dec. 19, Bitcoin was trading at $102,300 and Ethereum at $3,600, with several top coins like Cosmis, Floki, THORChain, Curve DAO Token, and Fantom performing poorly.
The Fed Decision’s Impact: The key reason for the crypto crash was the Federal Reserve’s decision. While the Fed cut interest rates by 0.25% as expected, bringing the cumulative cuts for the year to 1%, it signaled only two additional cuts in 2025 due to its focus on controlling inflation. Officials anticipate inflation will remain high and only reach the 2% target in 2026 or 2027. This hawkish stance led to declines in cryptocurrencies and other risk assets. The U.S. equity markets took a hit with the Dow Jones and Nasdaq 100 indices falling over 2%. U.S.
Treasury yields surged to multi-month highs, with the 10-year yield reaching 4.557% and the 30-year yield climbing to 4.7%. Additionally, the U.S. dollar index soared to a two-year high.
Mean Reversion and Distribution: Another factor contributing to the crypto decline is profit-taking, panic, mean reversion, and the Wyckoff Method distribution. Historically, crypto investors take profits when Bitcoin and other tokens experience significant rallies. Mean reversion comes into play when an asset in an uptrend drops to move closer to its historical averages, like Solana which remains about 20% above the 200-day moving average and may decline to approach that level. The Wyckoff Method outlines key phases in an asset’s lifecycle, and the recent crypto surge was part of the markup phase, while the current decline could indicate either a distribution phase or the start of markdown.
As for a potential recovery, cryptocurrency prices often follow Bitcoin’s movements. Bitcoin’s cup-and-handle pattern suggests a possible rally to $122,000 in the near term. If that occurs, it could prompt a recovery across altcoins. However, immediately after a dip, there’s a risk of a “dead cat bounce,” where an asset recovers briefly before resuming its downtrend.
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