Bitcoin's Plunge Driven by Macro Repricing, Recovery Expected as Liquidity Conditions Improve

The recent sharp decline in Bitcoin and Ethereum was primarily triggered by a repricing of interest-rate expectations, not inherent weaknesses in the cryptocurrency market, according to analysis from Wintermute. Institutional derisking targeted the most liquid assets first, leading to more pronounced drops in Bitcoin and Ethereum compared to altcoins, which did not crater as hard—a pattern atypical of true crypto market breakdowns.

The sell-off was concentrated during U.S. market hours, indicating macro-driven pressure rather than crypto-specific issues. This aligns with a collapse in December rate-cut odds from roughly 70% to 42% within days, forcing rapid adjustments across asset classes. Crypto, being highly rate-sensitive, reacted faster and harder than equities.

Wintermute emphasizes that the correction was a temporary response to shifting monetary expectations, not a trend reversal. Global liquidity support is building for 2025 and early 2026, with Japan advancing a $110 billion stimulus, China maintaining easing policies, the U.S. ending quantitative tightening next month, and a proposed $2,000 stimulus under discussion.

Meanwhile, the Federal Reserve's upcoming interest rate decision on December 10 remains a key focus, with traders divided between a 0.25% cut and holding rates at 4%. Fed Governor Christopher Waller expressed concerns about restrictive policy affecting consumers, while broader fiscal strains and a strengthening U.S. dollar have contributed to risk aversion. However, the Fed's plan to halt balance-sheet shrinkage at $6.5 trillion and potential repo operations could inject liquidity, supporting a Bitcoin recovery as conditions improve.