According to traders at QCP Capital, the primary reason behind the recent market crash appears to be overly bullish positioning by investors. In a note released on Friday, QCP stated, “While it is easy to blame the selloff on the Fed’s hawkish stance, we believe the root cause of the morning’s crash lies in the market’s excessively optimistic positioning.”
Bitcoin (BTC) and other major cryptocurrencies extended their losses for the third consecutive day as profit-taking and a risk-off sentiment following the Federal Open Market Committee (FOMC) meeting weighed heavily on the market.
In the past 24 hours, BTC fell by 4.2%, while Solana (SOL), Ethereum (ETH), and Cardano (ADA) recorded losses of up to 9%. Dogecoin (DOGE) experienced the steepest decline, dropping 11% and bringing its weekly losses to over 21%. The CoinDesk 20 Index (CD20), which tracks the largest digital assets by market capitalization, declined by 5.5%. Futures markets also felt the ripple effect, with over $890 million worth of long and short positions liquidated within the same period.
Market sentiment turned sharply negative after the FOMC meeting earlier this week. Fed Chair Jerome Powell hinted at only limited interest rate cuts in 2025, contrary to market expectations. Following the meeting, risk assets across the board suffered: the Nasdaq dropped by 3.5%, the S&P 500 fell by 2.9%, and Bitcoin saw a cumulative decline of over 6%.
During a post-FOMC press conference, Powell also clarified that the Federal Reserve is not permitted to hold Bitcoin under current regulatory frameworks. This comment came in response to a question about President-elect Donald Trump’s suggested plans for a Bitcoin strategic reserve.
QCP Capital further elaborated, noting that the market had enjoyed a sustained rally since the election, leaving it vulnerable to any significant shocks. While the Fed’s 25 basis point cut was widely anticipated, panic emerged from the revised dot plot, which now suggests only two rate cuts in 2025 instead of the previously expected three.
Despite the recent downturn, Bitcoin historically performs well in December, a trend often referred to as the “Santa Claus Rally.” Over the past eight years, Bitcoin has ended December in positive territory six times, with gains ranging from 8% to as high as 46% in 2020.
Seasonal trends often influence asset performance, with recurring patterns linked to tax-related profit-taking in April and May, followed by increased demand during the festive months of November and December. While recent market events have shaken investor confidence, historical trends suggest a potential recovery for Bitcoin before the year ends.
