Bitcoin has a historical tendency to punish consensus, but the post-Federal Reserve price action in December provided an especially sharp lesson in market structure around macro headlines.
On paper, this setup seemed constructive. The central bank cut interest rates for the third time this year, cutting the benchmark by 25 basis points, but Chairman Jerome Powell suggested further hikes were effectively off the table.
But instead of igniting the liquidity-driven rally to $100,000 that some in the retail market had been pricing in, Bitcoin retreated back below $90,000.
To the casual observer, this reaction means that the correlation is broken. However, this decline was not due to a malfunction, but rather due to the logical resolution of the configuration of multiple factors.
The rule of thumb that “lower interest rates, higher cryptocurrencies” often fails when policy impulses are already priced in, correlations between assets are increasing, and the plumbing of the financial system does not quickly transfer liquidity to risky assets.
pipe is cut
The main reason for the divergence is the subtle difference between the Fed’s liquidity policy and the market’s perception of “stimulus”. While the headline rate cuts are a sign of easing, the structure of the US dollar system tells a story of preservation.
Bulls point to the Fed’s pledge to buy about $40 billion in Treasury bills over the next month as a form of “quiet quantitative easing.”
However, the institutional macro strategy desk considers this characterization to be inaccurate. These purchases are primarily aimed at managing drains on the central bank’s balance sheet and maintaining ample foreign exchange reserves, rather than injecting new stimulus into the economy.
For Bitcoin to benefit from a true liquidity impulse, capital typically needs to move from the Fed’s reverse repurchase (RRP) facility to the commercial banking system, where it is rehypothesized.
Currently, that transmission mechanism faces friction.
Money market funds still comfortably park cash in risk-free vehicles. Liquidity impulses will remain subdued unless RRP balances decline significantly or return to aggressive balance sheet expansion.
Furthermore, Chairman Powell’s cautious tone that the labor market was merely “softening” reinforced his stance toward normalization rather than relief.
For the Bitcoin market, which has leveraged itself based on expectations of a flood of liquidity, the realization that the Fed was managing a “soft landing” rather than stimulating the pump was a signal to readjust its risk exposure.
High beta technology contagion
The macro rebalance comes at the same time as a stark reminder of Bitcoin’s evolving correlation profile.
Throughout 2025, the narrative of Bitcoin as an uncorrelated “safe haven” has largely given way to trading regimes where BTC acts as a high-beta proxy for the technology sector, especially AI trading.
The coupling came into focus following Oracle Corp.’s recent poor performance. When the software giant announced disappointing guidance for capital expenditures and revenue, it triggered a repricing across the Nasdaq 100.
If you look at traditional technology database companies in isolation, they should have little impact on the valuation of digital assets. But as trading strategies increasingly place bets on Bitcoin alongside high-growth tech stocks, the asset classes have become more closely in sync.
Therefore, when the tech sector weakened due to concerns about capital investment fatigue, the liquidity of cryptocurrencies also receded at the same time.
As a result, Bitcoin is now swimming in the same liquidity pool as big-cap tech stocks, so we believe this decline is not due to a specific interest rate decision by the Fed, but rather a contamination event between assets.
Derivatives and on-chain market signals
Perhaps the most important signal for the coming weeks will come from the downside composition.
Unlike the recent leveraged crash, data confirms that this was a spot-driven correction rather than a liquidation cascade.
According to CryptoQuant data, Binance’s estimated leverage ratio (ELR) has retreated to 0.163, well below the recent cycle average.
This metric is important for market health because a low ELR indicates that the futures market’s open interest is relatively small compared to the exchange’s spot reserves.
Meanwhile, options markets are reinforcing this stabilization view.
Option trading platform Signal Plus noted that BTC has settled into a narrow range between approximately $91,000 and $93,000, as reflected in a significant compression in implied volatility (IV). The 7-day At-the-Money IV fell from over 50% to 42.1%, indicating that the market is no longer expecting wild price movements.
Additionally, Deribit flows indicate open interest is concentrated around the $90,000 “max pay” level for upcoming expirations.
The balance of calls and puts on this strike suggests that sophisticated players are in a position to grind, utilizing a “short straddle” strategy to collect premium, rather than betting on a breakout.
Therefore, this recent BTC decline was not caused by mechanical margin pressure. Rather, this was deliberate risk avoidance by traders reassessing the situation post-FOMC.
Beyond the derivatives plumbing, on-chain conditions suggest that the market is in for a boom period.
Glassnode estimates that there are about $350 billion in unrealized losses across the cryptocurrency market, of which about $85 billion is concentrated in Bitcoin.
Typically, increases in unrealized losses appear at the bottom of the market. Here, as Bitcoin trades near all-time highs, a group of latecomers are instead revealed to be holding top positions in the red.
This overhang creates a natural headwind. When prices try to recover, these holders often try to exit at breakeven points and provide liquidity to the bull market.
final verdict
Nevertheless, industry observers view the Fed’s actions as structurally sound over the medium term.
GoMining CEO Mark Zalan said: crypto slate This means broader macro stabilization is more important than immediate price reactions. he said:
“As infrastructure strengthens and macro policy becomes more predictable, market participants gain confidence in Bitcoin’s long-term role. This combination provides a constructive backdrop for this asset heading into 2026.”
The disconnect between Zaran’s medium-term optimism and short-term price trends sums up the current market regime.
The “easy money” phase at the forefront of Pivot is over. Institutional inflows into ETFs have become less sustainable, requiring deeper value to re-engage.
As a result, we can infer that Bitcoin’s decline was not due to the Fed’s failure. The price fell because market expectations exceeded the ability to supply piping.
As leverage is flushed and volatility compressed, the recovery will likely be driven not by a single “God’s candle” but by a slow effort to clear overhead supplies and gradually transfer liquidity into the system.