Bitcoin faces challenges in early 2025 with Fed policies affecting price, while ETF inflows remain steady - IcoHolder.

The first week of 2025 has been a challenging one for Bitcoin, as the cryptocurrency saw a significant decline in value. From a high of $102,431, Bitcoin dropped to $91,215 before rebounding slightly to around $95,000. Despite this recovery, the weekly candle is expected to close in the red, indicating continued bearish sentiment.

A report from Matrixport suggests that Bitcoin’s struggles could be linked to global liquidity shifts and broader macroeconomic difficulties. These factors may push the cryptocurrency into a consolidation phase, which could limit its growth potential in the near term. Central to this analysis is the Federal Reserve’s hawkish stance on monetary policy, which is seen as a key obstacle to Bitcoin’s price rally, even as inflows into Bitcoin exchange-traded funds (ETFs) remain steady.

The Matrixport report stresses that the Federal Reserve’s policies are having a more significant impact on Bitcoin’s price movements than the ongoing growth of Bitcoin ETFs. Historical data shows that liquidity trends often precede Bitcoin price changes by roughly 13 weeks. This suggests that while ETF inflows have stalled since the Federal Open Market Committee's (FOMC) meeting in December, the primary driver of Bitcoin's price will likely be broader liquidity factors, rather than ETF-related news.

Despite the stagnation of ETF inflows, which have remained flat since reaching a record $35.9 billion, there is growing concern that the Fed’s policies are dampening investor sentiment. The market appears to be awaiting more clarity on the direction of U.S. monetary policy before making significant moves.

Looking at past trends, the report highlights that Bitcoin has historically performed better when the Fed has adopted a dovish stance. The cryptocurrency experienced a strong rally early in 2024 when the Fed took a more dovish approach, but this momentum stalled in March as uncertainty surrounding rate cuts led to a six-month period of consolidation. A renewed dovish tone in the fourth quarter spurred another surge in Bitcoin’s price.

Given the current environment, the Matrixport report suggests that the Fed’s hawkish policies may prevent another significant rally in the short term. Traders may need to adjust their strategies, considering more conservative options such as call and put options to protect gains while still maintaining exposure to market fluctuations.

As Bitcoin faces these headwinds, it remains uncertain whether the cryptocurrency will overcome the challenges posed by macroeconomic conditions and the Fed’s policies.