Bitcoin Stumbles at $90K Amid Fed Rate Cut Doubts
Key Insights:
- Investor shift towards US Treasurys and decreased likelihood of Fed rate cuts are steering attention away from Bitcoin.
- Economic challenges in Japan and softer US employment data are compounding Bitcoin's pressure, hindering its short-term appeal as a hedge.
Bitcoin (BTC) has faced repeated challenges in sustaining levels above $92,000 over the past month. Market participants have offered various explanations for this trend. While some cite market manipulation, others are concerned about the AI sector's influence, despite lacking solid evidence. Meanwhile, the S&P 500 remains just 1.3% off its peak, contrasting with Bitcoin's 30% drop from its October high of $126,200. This indicates rising risk aversion among traders, undermining the narrative of an AI bubble affecting broader markets.
Despite Bitcoin's decentralized allure, gold has emerged as the preferred hedge amid economic uncertainty.
Fed's Balance Sheet Moves Impact Bitcoin
The US Federal Reserve's strategy of reducing its balance sheet for most of 2025 has contributed to capping Bitcoin near $90,000. This liquidity withdrawal was reversed in December due to weakening job markets and consumer data. Retail giants like Target and Macy's have lowered earnings forecasts, citing inflationary pressures, while Nike reported a significant drop in sales, reflecting a bearish outlook for riskier assets.
Despite signals of a shift towards a more accommodative monetary policy, traders doubt the Fed's ability to reduce interest rates below 3.5% by 2026, partly due to a 43-day government shutdown that disrupted key economic data releases.
According to the CME FedWatch Tool, the probability of a rate cut at the January 2026 FOMC meeting decreased from 24% to 22%. Meanwhile, strong demand for US Treasurys, evidenced by stable 10-year yields, underscores growing risk aversion, further dampening Bitcoin interest.
Bitcoin's weakening correlation with traditional markets does not shield it from economic downturns. Japan's debt struggles, marked by 10-year bond yields surpassing 2% for the first time since 1999, heighten contagion risks. Japan's GDP contraction and prolonged negative interest rates underscore these challenges.
Bitcoin's struggles around $90,000 reflect global growth uncertainties and weak US labor data. As investors grow more cautious, the benefits of lower interest rates on risk assets diminish. Consequently, even with potential inflation upticks, Bitcoin is unlikely to serve as a near-term alternative hedge.
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