Bitcoin’s recent price correction to $92,500 has been attributed to growing concerns over the United States Federal Reserve’s tightening monetary policy. The flagship cryptocurrency, which briefly breached the $100,000 psychological mark on 7 January for the first time since 19 December, faced a sharp downturn as economic and monetary factors came into play.
Federal Reserve Policy and Economic Resilience
Ryan Lee, chief analyst at Bitget Research, explained that Bitcoin’s decline was primarily driven by strong US economic data, which heightened expectations of potential interest rate hikes. “This development makes cryptocurrencies less attractive as investments, while the Federal Reserve’s signals of tighter monetary policy further intensify market corrections,” he noted.
Bitcoin liquidation heatmap. Source: CoinGlass
The Federal Reserve’s focus on maintaining higher interest rates has delayed market expectations of a rate cut. According to the CME Group’s FedWatch tool, the first potential rate reduction is now projected for 18 June. Meanwhile, the Fed is expected to keep rates unchanged at its upcoming 29 January meeting, with a 95.2% probability reported.
Market Liquidations and Investor Sentiment
Bitcoin’s dip also triggered significant liquidations, with CoinGlass data showing over $631 million worth of leveraged long positions wiped out in the past 24 hours. This liquidation event is expected to prompt a consolidation phase as traders adjust their positions.
Lee added that macroeconomic indicators will continue to play a crucial role in shaping investor behaviour and market dynamics in the coming weeks.
Potential for Further Correction
Analysts suggest Bitcoin could drop below the $90,000 mark before embarking on its next major rally. John Glover, Chief Investment Officer of Ledn and former Barclays managing director, believes this correction might be necessary to conclude the current phase of reduced market liquidity.
BTC/USD, 1-day chart. Source: Rekt Capital
“This could lead us to test the $90,000 level again before the next significant move higher. Using wave analysis, we appear to be completing what I view as the fourth wave, suggesting a rally toward the $126,000–$128,000 range following this consolidation phase,” Glover explained.
Crypto analyst Rekt Capital also highlighted the importance of Bitcoin holding above the $91,000 support level. In a post on X (formerly Twitter), he wrote: “Bitcoin has failed its Daily retest, losing $101,165 convincingly as support. As a result, Bitcoin has reverted back into its $91,000–$101,165 range once again.”
Long-Term Optimism
Despite the current challenges, analysts remain optimistic about Bitcoin’s long-term prospects. Some predict a cycle peak exceeding $150,000 by late 2025, driven by a projected $20-trillion increase in the global money supply. This expansion could potentially attract $2 trillion in investments into Bitcoin, providing a significant boost to its price.
While Bitcoin faces short-term volatility, its trajectory remains bullish as investors navigate macroeconomic conditions and market sentiment.
