This week, Bitcoin's value hit a new peak due to various factors boosting its growth.
Cryptocurrency bitcoin soared to new record highs throughout the week ending December 20, with numerous factors, including significant political developments, contributing to its notable upward trend.
As early as Monday, December 16, and Tuesday, December 17, the digital currency hit unprecedented levels, surpassing $107,000 and $108,000 respectively, according to data from Coinbase, as presented on TradingView.
However, following these peaks, the digital asset experienced a series of setbacks, with retreats and a drop to almost $92,000 on Friday, December 20, as further figures from Coinbase, sourced from TradingView, demonstrated.
Various analysts provided their insights into the reasons behind these price swings, such as Alex Lin, cofounder and general partner at venture capital firm Reforge, which focuses on investing in blockchain and emerging technologies.
Lin asserted that Bitcoin's ascent to an all-time high of over $108,000 was driven by a confluence of factors that began early last week, with anticipation of Federal Reserve rate cuts and a favorable market sentiment towards the asset after it surpassed the $100,000 mark.
Lin further explained that reduced BTC supply on exchanges, reported earlier in the month, suggested that investors were moving their BTC into personal custody, thereby reducing the available supply and enhancing scarcity in response to mounting demand.
In addition, as Bitcoin drew near and eventually surpassed previous highs during the week, short positions were squeezed, resulting in additional buying pressure as investors sought to cover their positions.
However, this all-time high was fleeting, as the Fed's announced rate cuts on Wednesday were less than expected, according to the announcement issued on December 18 by the Federal Open Market Committee.
Lin explained that the hawkish stance and cautious monetary policy prompted a Bitcoin sell-off, which was followed by substantial liquidations in the derivatives market and further amplifying the price drop as positions were forcibly closed.
Brady Swenson, cofounder of Swan Bitcoin, commented on the price declines that Bitcoin endured in the latter part of the week. Swenson believed that these declines were more related to Federal Reserve Chair Jerome Powell's statements about fewer rate cuts in 2025 than to the government shutdown drama.
However, these developments simply made Bitcoin more attractive, Swenson argued.
“The impending government shutdown and the changes in monetary policy both emphasize the allure of Bitcoin's transparent, code-based policies, contrasting with the opaque and complex decision-making process associated with human consensus building on significant monetary and fiscal decisions,” Swenson stated.
Greg Magadini, director of derivatives for digital asset data provider Amberdata, also weighed in on the price declines experienced by Bitcoin after hitting an all-time high earlier in the week.
“With the markets at all-time highs, relatively strong CPI figures last week, and a robust labor market, the Fed adjusted its guidance for 2025 rate cuts to a more hawkish stance,” Magadini wrote in an email on Friday, December 20.
Magadini pointed out that following the recent US election, the crypto market's long exposure far outweighed its short exposure, which created an environment that made it easier for a pullback to occur as investors reassessed the US rate landscape and the value of the US dollar increased.
Looking ahead, Bitcoin is poised to appreciate, Tim Enneking, managing partner of Psalion, asserted in emailed comments.
“With a significant decline back to the low 90s, the stage is now perfectly set for another upswing,” Enneking stated.
“Correlation with 'risk-on' fiat assets will still be stronger than the crypto ecosystem desires, but crypto operates on a 24/7 basis, whereas fiat markets run for around 20% of the time, so the crypto bull will still have ample room to run,” Enneking added.
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS, and SOL.
The announcement of less than expected federal reserve rate cuts by the FOMC on December 18 negatively impacted Bitcoin prices, leading to a sell-off and substantial liquidations in the derivatives market.
Brady Swenson, cofounder of Swan Bitcoin, attributed the price declines towards the end of the week to Federal Reserve Chair Jerome Powell's statements about fewer rate cuts in 2025, emphasizing the allure of Bitcoin's transparent, code-based policies compared to human consensus-building processes associated with significant monetary and fiscal decisions.
