The steep drop is attributed to a confluence of factors, including the Federal Reserve’s recent hawkish stance on interest rates and broader market jitters over cryptocurrency exchange-traded funds (ETFs).

Source: BNC Bitcoin Liquid Index

Over the past few weeks, the global cryptocurrency market capitalization has fallen below the $3.5 trillion mark—shedding roughly $500 billion after the Federal Reserve’s statement on December 17. Bitcoin, which had surged to a new all-time high of just over $108,000 last Tuesday, is now trading around $93,245, representing a double-digit loss in under seven days.

Fed Comments Trigger Large ETF Outflows

Adding to Bitcoin’s woes, cryptocurrency ETFs saw record outflows last Thursday following Fed Chair Jerome Powell’s warning that rate cuts in 2025 would not be as aggressive as some had hoped. According to data from European fund manager CoinShares, investors withdrew $576 million in one day alone, bringing total outflows to $1 billion by Friday. This dramatic shift in sentiment followed a hefty $3.2 billion worth of inflows into crypto funds the week prior.

Source: CoinShares

Analysts suggest that rising interest rates could continue to weigh on high-risk assets. Historically, Bitcoin has performed better in lower-rate environments, which often encourage speculative investment into cryptocurrencies. With market participants now bracing for a less accommodative monetary policy, some traders are looking toward alternative digital assets and decentralized finance (DeFi) products for potential gains.

Shifting Investor Preferences

While Bitcoin typically draws the lion’s share of investor attention, data indicates a gradual rotation into alternative tokens and related investment products. CoinShares reported that Ethereum-focused funds saw $51 million in inflows last week, whereas Solana-based products witnessed $8.7 million in outflows. This preference for Ethereum suggests that some investors are diversifying away from Bitcoin amid ongoing market turbulence.

Still, Bitcoin remains the bellwether for the crypto market. Its volatility and price direction frequently set the tone for digital asset sentiment. Observers note that if it stabilizes in the coming days, positive momentum could return—especially if investors believe the impact of Fed policy decisions will be short-lived.

Looking Ahead

Market participants are now closely watching the policy signals coming from the Trump administration’s newly appointed “Crypto Council,” headed by Bo Hines. The Council aims to foster growth in the digital asset sector, aligning with President-elect Trump’s campaign promises to champion financial innovation.

Nonetheless, investors remain cautious in the short term, with many anticipating that macroeconomic pressures will continue to overshadow the crypto landscape. For Bitcoin and the broader market, the path to recovery may hinge on whether policymakers maintain a supportive environment for digital assets—and whether current risk-off sentiment subsides as 2025 approaches.