On December 20, U.S. stock market indices opened lower but quickly reversed course, climbing into positive territory by midday. In contrast, the cryptocurrency market faced steep declines, with Bitcoin falling over 12% from its recent all-time high. Increased selling pressure was partly driven by unexpectedly hawkish signals from the U.S. Federal Reserve.
A record net outflow of $680 million was reported from Bitcoin exchange-traded funds (ETFs), contributing to a wave of liquidations. Over 430,000 traders faced forced closures of leveraged positions across global cryptocurrency exchanges.
U.S. Markets Recover While Crypto Stocks Drop
Despite a weak opening, major U.S. indices including the S&P 500, Nasdaq, and Dow Jones turned positive by the afternoon. However, stocks tied to the crypto ecosystem saw significant declines. Coinbase, BitDigital, and Canaan Technology each dropped more than 3%, while MicroStrategy declined over 2%.
In other market movements, pharmaceutical firm Novo Nordisk plunged 20% after its weight-loss drug CagriSema delivered disappointing trial results. Competitor Eli Lilly, by contrast, rose more than 7%.
Key Economic Indicators Reflect Mixed Signals
Recent economic data presented a mixed picture for policymakers and investors. The U.S. core Personal Consumption Expenditures (PCE) price index—a key inflation gauge closely monitored by the Federal Reserve—rose 2.8% year-over-year in November, slightly below the 2.9% forecast. On a monthly basis, core PCE increased by 0.1%, lower than the anticipated 0.2%.
Following the release, emerging market currencies strengthened, and the U.S. Dollar Index briefly dropped below the 108 level.
Ian Lyngen of BMO Capital Markets noted, “The data aligns with the more moderate inflation trends we’ve seen in the fourth quarter. Still, core inflation isn’t low enough to push the Fed toward a rate cut in January.”
Policy Uncertainty and Fed Outlook
New York Fed President John Williams projected that U.S. economic growth would slow to around 2% next year. Although inflation has decreased significantly over the past two years, he emphasized that the central bank will remain data-dependent in its policy adjustments.
Political risks also reemerged as a government shutdown loomed. With the Republican-led House rejecting a temporary funding bill supported by former President Trump, federal agencies faced the possibility of closing within 24 hours. This added another layer of uncertainty to financial markets.
A senior strategist at RBC Wealth Management Asia commented that a shutdown could increase near-term market volatility, particularly given existing concerns around persistent inflation and U.S. debt sustainability.
Bitcoin Leads Broad Crypto Sell-Off
Bitcoin fell sharply during the December 20 trading session, dropping more than 8% at one point to $92,268. This represented a significant pullback from its recent peak of $108,365. Other major cryptocurrencies, including Ethereum and Dogecoin, also posted substantial losses.
Although Bitcoin later pared some losses, it still traded around $95,220—down more than 5% on the day.
Market-Wide Impact and Liquidation Surge
According to data from Coinmarketcap, ten of the top twenty cryptocurrencies by market capitalization fell more than 10% in 24 hours. Dogecoin, ranked seventh, dropped 17%. The overall crypto market capitalization declined by 7.35%, shedding approximately $260 billion in a single day to reach $3.26 trillion.
Massive liquidations contributed to the downward momentum. Over 434,000 traders were liquidated in 24 hours, with total losses exceeding $1.4 billion. December has already seen several large liquidation events, including a yearly high of $1.7 billion on December 9.
Investor Sentiment and Macro Pressures
The swift reversal in Bitcoin’s price follows a rally driven by pro-crypto statements from former President Trump after his election victory on November 5. However, analysts at QCP Capital noted that digital assets remain vulnerable to shifts in monetary policy.
On December 18, the Federal Reserve lowered the federal funds rate by 25 basis points to a range of 4.25%–4.50%. While the cut was widely expected, the Fed’s updated summary of economic projections indicated only two rate cuts in 2025—half the number anticipated by markets.
This more conservative outlook has shifted investor focus toward traditional financial institutions' adoption of crypto assets. According to QCP, the interaction between monetary policy and institutional adoption will be critical for market direction.
Frequently Asked Questions
Why did Bitcoin and other cryptocurrencies fall so sharply?
Cryptocurrencies declined due to a combination of factors including hawkish comments from the Federal Reserve, massive outflows from Bitcoin ETFs, and heightened liquidation activity. Broader risk-off sentiment also contributed to the sell-off.
How did U.S. equities perform amid the crypto crash?
U.S. stock indices initially opened lower but recovered throughout the session, ending in positive territory. This divergence highlights that traditional and crypto markets can sometimes move independently based on different catalysts.
What role did inflation data play in market movements?
The core PCE inflation reading came in slightly cooler than expected, which supported bonds and emerging market currencies. However, it was not enough to change the Fed’s cautious stance on interest rate policy, maintaining pressure on risk assets.
Will the crypto market recover soon?
Market analysts suggest that cryptocurrencies will remain sensitive to macroeconomic trends, regulatory developments, and institutional adoption rates. While recoveries are possible, volatility is expected to persist in the near term.
How can investors track real-time market changes?
Staying informed requires access to reliable market data and analytical tools. 👉 Monitor live crypto market updates here to make informed decisions.
Are liquidations likely to continue?
Liquidations often accelerate during periods of high volatility and sharp price movements. Traders using high leverage should remain cautious and consider risk management strategies.
Note: This content is for informational purposes only and does not constitute investment advice. Always conduct your own research and consult with a qualified financial professional before making investment decisions.