Bitcoin's Recent Struggles Amid Evolving Economic Conditions

Bitcoin price struggles

Summary:
Bitcoin has faced significant challenges recently, unable to maintain momentum above the $90,000 mark due to shifting investor sentiment and broader economic uncertainties. As demand for safer assets like U.S. Treasurys rises and the Federal Reserve's rate cut expectations fade, Bitcoin's appeal as a hedge is being tested.

Key Takeaways:

A strong interest in U.S. Treasurys and decreasing chances of a Fed rate cut suggest that investors are opting for safer investments, which has led to diminished interest in Bitcoin.
Economic slowdowns in Japan and lackluster U.S. employment data are adding strain to Bitcoin, making it less viable as a hedge in the short term.

Bitcoin has consistently struggled to stay above the $92,000 threshold over the past month, leading to various explanations for this price downturn. Some traders speculate that market manipulation may be at play, while others focus on rising worries concerning the artificial intelligence sector, despite little evidence to back these theories.

As of Friday, the S&P 500 was trading just 1.3% short of its all-time high, whereas Bitcoin remains approximately 30% below the $126,200 level achieved in October. This discrepancy highlights a growing risk aversion among traders, contradicting the notion that concerns about an AI bubble are negatively impacting the broader market.

Market Trends
Gold/USD (left) vs. Bitcoin/USD (right). Source: TradingView

Regardless of Bitcoin's appeal as a decentralized asset, gold has been the preferred choice for investors seeking a hedge against economic uncertainty.

Federal Reserve Actions Impact Bitcoin Price

One significant factor hindering Bitcoin's ability to surpass the $90,000 mark has been the U.S. Federal Reserve's ongoing effort to reduce its balance sheet, which has drained liquidity from the financial markets throughout much of 2025. However, in December, this trend shifted as signs of weakness in the job market and deteriorating consumer data raised concerns about future economic growth.

On Dec. 9, Target reduced its fourth-quarter earnings forecast, and on Dec. 10, Macy's cautioned that inflation would squeeze margins during the holiday shopping season. Nike's quarterly sales fell on Dec. 18, resulting in a 10% drop in its stock prices on that Friday. Typically, a decline in consumer spending fosters a bearish climate for assets perceived as high risk.

Traders are grappling with uncertainty regarding the Fed's capability to reduce interest rates below 3.5% in 2026. This uncertainty is partly due to a 43-day government funding shutdown, which delayed the release of crucial employment and inflation data, further complicating economic forecasts.

Fed Rate Predictions
Fed target rate probabilities for Jan. 2026 FOMC. Source: CME FedWatch Tool

Currently, the likelihood of an interest rate cut during the FOMC meeting scheduled for Jan. 28 has dropped to 22% from 24% the previous week, as indicated by the CME FedWatch Tool. Additionally, demand for U.S. Treasurys remains robust, with the 10-year yield at 4.15% on Friday, after previously dipping below 4% in late November. This trend reflects a growing preference for safety among investors, impacting Bitcoin's demand adversely.

Bitcoin Correlation
S&P 500 Index 40-day correlation vs. Bitcoin/USD. Source: TradingView

While Bitcoin's correlation with traditional markets is decreasing, it does not signify that cryptocurrency investors are insulated from economic pressures. Weaker demand for Japanese government bonds is raising contagion risks as Japan’s 10-year bond yields exceed 2% for the first time since 1999.

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Japan, with the world’s fourth-largest GDP and a monetary base of $4.13 trillion, is facing notable economic challenges. A recent 2.3% annualized contraction in GDP during the third quarter is significant, as Japan has maintained negative interest rates for over a decade and relied on currency depreciation as a growth strategy.

Bitcoin’s struggle to sustain levels near $90,000 highlights investor uncertainty surrounding global economic growth and weaker labor market indicators in the U.S. As investors adopt a more risk-averse stance, the favorable effects of diminished interest rates and stimulus on riskier assets, including Bitcoin, seem to weaken. Consequently, even if inflation picks up again, expectations for Bitcoin to serve as an effective hedge in the near future appear limited.