Why Is Crypto Down Today? Bearish Fears Grow As BTC Dips To $93k

The crypto market is down today due to $1.36billion in liquidations following the Fed’s inflation forecast and limited rate cut projections for 2025, sparking investor concerns. Bitcoin and major altcoins faced sharp corrections, with ETFs recording record outflows.

The crypto market faced a significant correction on 20 December, with over $1.36bn liquidated in the past 24 hours and an overall market decline of nearly 13%. Bitcoin plunged below $93,000, its lowest price in over a month, while meme coins bore the brunt of losses. XRP has also dipped below $2.

So, why are Bitcoin and the crypto market down today? There are a lot of macroeconomic factors at play. Let’s explain. 

Inflation forecast sparks market sell-off

Data from Coinglass reveals Bitcoin liquidations exceeded $320m, with Ethereum trailing at $304m. This market downturn followed the Federal Reserve’s decision to lower interest rates by 25 basis points on Wednesday.

Typically, rate cuts are seen as positive for cryptocurrency, signaling easier monetary conditions. However, the Fed’s long-term projections have spooked investors. Federal Reserve Chair Jerome Powell announced expectations of higher inflation in 2025 and limited rate cuts next year, triggering concerns of a prolonged bearish market.

While the crypto market suffered heavy losses, the impact was more pronounced in traditional equities, where nearly $1.5trillion was wiped out. Analysts suggest this wave of liquidations might represent a short-term reset rather than the start of a sustained downtrend. Historically, similar corrections occur at the end of strong bullish years, with recovery expected in early January.

Altcoin season on the horizon?

Some experts predict that Bitcoin’s declining dominance could pave the way for a surge in altcoins like Ethereum and Solana. Increasing liquidations in Bitcoin could redistribute market activity toward altcoins in the coming months.

Exchange-traded funds (ETFs) tied to Bitcoin recorded their largest single-day outflows since their launch, with $672 million pulled from the market on Thursday. Ethereum ETFs followed suit, breaking an 18-day streak of positive inflows.

The outflows come as investors react to Powell’s comments, compounding bearish sentiment. Despite this, Bitcoin remains up 130% year-to-date, underlining its resilience in the face of macroeconomic pressures. 

Long-term outlook still bullish

Despite today’s market turbulence, industry insiders maintain an optimistic view for 2025. Institutional activity continues to bolster confidence. MicroStrategy, which holds nearly 2% of Bitcoin’s supply, recently purchased $3 billion worth of Bitcoin, even as prices hovered above $100,000. Other firms like Marathon Digital and Riot Platforms have also ramped up their Bitcoin acquisitions.

There is growing momentum for regulatory shifts, with global policymakers advocating for Bitcoin reserves, further strengthening the asset’s appeal.

Bitcoin’s supply shock could drive future gains

The tightening supply of Bitcoin signals potential upward pressure on prices. According to CryptoQuant, accumulator addresses are adding 495,000 Bitcoin monthly, while sell-side liquidity has dropped to its lowest level since 2020, with just 3.397 million Bitcoin available across exchanges, miners, and OTC desks.

The inventory ratio, which measures the duration that current supply can meet demand, has dropped sharply from 41 months in October to just 6.6 months, reflecting a shrinking supply against rising demand.

While macroeconomic factors contributed to today’s liquidations, tightening supply conditions and ongoing accumulation may set the stage for a bullish market in 2025.