Crypto Market in Turmoil: Bitcoin, Ethereum, and XRP Face Steep Declines Amidst Fed's "Risk-Management" Cut
The cryptocurrency market kicked off the week with a significant slump, seeing its total capitalization drop towards $3.8 trillion. Major digital assets, including Bitcoin (BTC), Ethereum (ETH), and XRP, recorded notable losses, raising questions about the factors driving this sharp downturn.
Market Downturn and Altcoin Impact
Bitcoin, the leading cryptocurrency, bore the brunt of the correction, plunging to as low as $112,700. This ripple effect was felt across the altcoin spectrum, with Ethereum, XRP, Solana (SOL), and Dogecoin (DOGE) reporting declines of 7%, 5%, 7%, and 10% respectively, according to CoinGecko data. The selloff extended to crypto-related stocks, as Bitcoin investment firm Strategy (MSTR) dropped 2.6% and US-based exchange Coinbase fell 3.4%. Interestingly, the benchmark S&P 500 index managed a 0.4% gain, hinting at a divergence from traditional markets.
The Fed's Influence and Speculative Leverage
Analysts point to the Federal Reserve's recent decision to cut interest rates by a quarter point—its first rate cut of 2025—as a primary catalyst for the market's woes. Adam Morgan McCarthy, head of research at Kaiko, suggests that a build-up of excess leverage from speculative trading, likely in anticipation of the rate cut, contributed to the downturn. This speculative activity, combined with an initial price decline, triggered a wave of liquidations, further intensifying the market's negative momentum. Fed Chair Jerome Powell described the rate cut as a "risk-management cut," indicating a cautious stance rather than a broad easing of monetary policy. Despite the immediate challenges, the long-term outlook for the crypto market remains optimistic. Deutsche Bank strategist Marion Laboure projects a robust recovery for Bitcoin, predicting it could exceed $120,000 by the close of 2025, suggesting resilience in the face of current volatility.
