The cryptocurrency market faced renewed pressure on Thursday evening as a wave of risk-off sentiment triggered a broad-based correction. Bitcoin (BTC), often seen as the bellwether of digital assets, led the downturn, briefly dipping below the critical $106,000 level before regaining slight footing. According to real-time data, the BTC/USDT pair hit a 24-hour low of $106,766.08, later recovering to around $107,590.06—still well off its intraday high of $108,746.16. This reversal erased earlier stability and underscored the persistent volatility embedded in crypto markets.
The sell-off extended beyond Bitcoin, with major altcoins suffering steeper declines. Ethereum (ETH), Solana (SOL), and XRP all registered losses between 5% and 7%, according to market analysis from outlets like The Kobeissi Letter. The downturn intensified during U.S. trading hours, coinciding with rising geopolitical tensions—particularly growing concerns over potential conflict in the Middle East. Historically, such uncertainty drives investors toward safe-haven assets, pulling capital away from speculative markets like cryptocurrencies.
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Federal Reserve’s Hawkish Stance Weighs on Digital Assets
A key catalyst behind the market's bearish shift was the Federal Reserve’s latest monetary policy announcement. As widely anticipated, the central bank held its benchmark interest rate steady at 4.25%–4.50%. While the decision itself was no surprise, the accompanying economic projections sent a clear hawkish signal to financial markets.
The Fed’s updated "dot plot" indicated that policymakers still expect only 50 basis points of rate cuts in 2025—unchanged from their March forecast. More significantly, they revised downward their outlook for future easing, now anticipating fewer rate cuts in both 2026 and 2027. This suggests that higher interest rates will persist “for longer,” a scenario typically unfavorable for growth-oriented assets like cryptocurrencies, which thrive in low-rate environments with abundant liquidity.
Additionally, the Fed adjusted its macroeconomic forecasts: GDP growth for the year was downgraded from 1.7% to 1.4%, while the PCE inflation projection was raised from 2.7% to 3.0%. These revisions imply that inflation remains sticky and economic expansion is slowing—a challenging combination for risk assets.
Initially, Bitcoin showed little reaction to the statement, hovering near $104,200 immediately after the announcement. However, the lack of any dovish pivot likely contributed to mounting selling pressure throughout the session, reinforcing downward momentum across the crypto landscape.
Altcoin Analysis: Volatility and Relative Strength in Focus
While Bitcoin struggled, altcoins experienced an even sharper correction—offering both risks and opportunities for active traders.
Ethereum (ETH) traded in a wide range between $2,414.29 and $2,522.57 before settling around $2,512.97. Solana (SOL) also faced turbulence, dropping to a low of $149.70 against USDT before rebounding—highlighting strong resistance near the $160 mark. XRP weakened further, falling to a session low of $2.1676.
However, a deeper look at BTC-denominated pairs reveals a more nuanced picture. The ETH/BTC trading pair rose 3.22% to 0.02334 BTC, signaling relative strength despite dollar-denominated losses. Similarly, SOL/BTC surged 4.15% to 0.00147100 BTC. This divergence indicates that while the broader market sold off in USD terms, capital may be rotating from Bitcoin into major altcoins.
Traders could interpret this as a sign of relative undervaluation or oversold conditions in top-tier altcoins compared to BTC. It also highlights an important strategic insight: even during bearish phases, cross-market opportunities exist in pairs like ETH/BTC and SOL/BTC, where relative performance can generate alpha.
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Conflicting Data Sparks Hope for Future Rate Cuts
Despite the Fed's firm stance, mixed macroeconomic signals offer a glimmer of hope for a potential policy shift later this year.
On Thursday, May’s Producer Price Index (PPI) came in below expectations, suggesting inflationary pressures may be easing at the wholesale level. At the same time, initial jobless claims remained elevated at 248,000—matching the previous week’s multi-month high. More notably, continuing claims climbed to their highest level since November 2021, pointing to a softening labor market.
According to The Kobeissi Letter, these signs of economic cooling could eventually compel the Fed to adopt a more accommodative stance sooner than currently projected. For crypto investors, this creates a dual narrative: near-term headwinds driven by high rates and global uncertainty versus long-term tailwinds if monetary policy turns dovish.
Historically, rate-cut cycles have been powerful catalysts for bull markets in digital assets. If upcoming data continues to show weakening growth or labor market fragility, the Fed may be forced to pivot—potentially reigniting investor appetite for higher-risk assets like Bitcoin and Ethereum.
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- Market volatility
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Frequently Asked Questions (FAQ)
Q: Why did Bitcoin drop below $106,000?
A: The drop was driven by a combination of geopolitical tensions, a hawkish Federal Reserve outlook, and broader risk-off sentiment in global markets. Despite holding rates steady, the Fed signaled fewer future rate cuts, weighing on growth-sensitive assets like crypto.
Q: Are altcoins performing worse than Bitcoin?
A: In USD terms, yes—major altcoins like ETH, SOL, and XRP saw steeper percentage declines. However, when measured against Bitcoin (e.g., ETH/BTC), many altcoins showed relative strength, suggesting possible capital rotation within the crypto market.
Q: Could the Fed start cutting rates in 2025?
A: Yes—the Fed still projects 50 basis points of cuts in 2025. However, this depends on incoming economic data. If inflation cools and labor market weakness persists, rate cuts could begin earlier or be more aggressive than currently expected.
Q: How do interest rates affect cryptocurrency prices?
A: Higher interest rates increase the opportunity cost of holding non-yielding assets like Bitcoin. They also reduce liquidity in financial systems, making investors favor safer instruments. Conversely, rate cuts tend to boost risk appetite and often precede strong rallies in digital assets.
Q: Is this market dip a buying opportunity?
A: That depends on your investment horizon. Short-term volatility may continue due to macro factors. However, if economic data weakens further and the Fed shifts toward easing, mid-to-long-term conditions could become favorable for crypto accumulation.
Q: What should traders watch next?
A: Key indicators include upcoming CPI and employment data, Fed speeches, geopolitical developments, and on-chain metrics like exchange outflows and funding rates. BTC’s ability to hold above $105,000 will be crucial for near-term sentiment.