Bitcoin, Ethereum, and Dogecoin Plunge: What's Behind the Crypto Crash?

The crypto momentum we've observed throughout the fall and early winter has taken a significant hit in the last 24 hours following the Federal Reserve's decision to cut interest rates. While this might initially seem beneficial, the Fed also indicated that it expects inflation and unemployment to rise more than anticipated by 2025, prompting investors to sell off risk assets today.

The Major Players in Decline

As of 3 p.m. ET, Bitcoin (BTC) has experienced a notable decline of 6.2%, dropping below the $100,000 mark. Meanwhile, Ethereum (ETH) is down 9.7% to $3,350, and Dogecoin (DOGE) has plummeted 16.8% to $0.3032.

Today's Change:

• Bitcoin: (-3.15%) -$3,056.30
• Current Price: $96,625.93

The Fed's Impact on Crypto

Despite cryptocurrencies being marketed as alternatives to traditional finance, they often behave like traditional risk assets. When interest rates rise, as they have recently, cryptocurrency values tend to decline along with growth stocks. Following the Fed's announcement, the yields on long-term government bonds increased, which historically correlates with lower valuations for cryptocurrencies.

Is the FOMO Cycle Ending?

The recent surge in the crypto market was largely driven by speculation surrounding political events, particularly the election of President-elect Donald Trump. However, the gains did not align with any significant fundamental changes in the industry, suggesting that the Fear of Missing Out (FOMO) driving valuations might be waning.

Questions Heading into 2025

The gains seen over the past year were primarily based on speculation, including the approval of exchange-traded funds (ETFs). As we approach 2025, there may be fewer supportive factors in the market, with pricing increasingly reliant on new buyers entering the space.

Additionally, MicroStrategy, the largest individual buyer of Bitcoin, has also seen its stock decline, which further impacts Bitcoin prices. As Bitcoin goes, so goes the rest of the crypto market, leading to today’s downturn.