Crypto Experiences Significant Decline Following Fed Rate Cut: Insights from Santiment

The cryptocurrency market reacted negatively after the Federal Reserve announced its third consecutive 25 basis points cut to interest rates in December 2025. While retail investors saw this as a positive sign, larger investors used the opportunity to exit. This article examines the factors that led to the market downturn and what it could mean for the future of cryptocurrencies.

Key Takeaways

The Federal Reserve's interest rate cut on December 11 led to a temporary spike in crypto prices, followed by a sharp decline.
Retail investors perceived the cut as a positive development, while large holders sold off their positions.
Historical trends suggest that cryptocurrencies may lag behind equities and commodities in reacting to macroeconomic shifts.
There is evidence of accumulation by smart money in the Bitcoin market, indicating potential bullish sentiment in the long term.

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Crypto Market Reaction to Fed Rate Cuts

The cryptocurrency market fell sharply following the Federal Reserve's announcement of a third consecutive 25 basis points rate cut to close out the year 2025. Santiment's latest analysis highlights a disconcerting scenario: while retail investors treated the announcement as a positive signal, larger investors used it as an opportunity to exit their positions.

Initially, Bitcoin reached as high as $94,044, Ether climbed to $3,433, XRP peaked at $2.10, and Solana soared to around $142. However, this upward momentum was short-lived, with Bitcoin dropping more than 5% at its lowest point and Ethereum plummeting by over 8.5%.

Reasons Behind the Crypto Market Decline

On December 11, the Federal Open Market Committee (FOMC) confirmed the latest quarter-point reduction, marking what Santiment referred to as the "trifecta of cuts at the end of 2025." Lower interest rates typically encourage more borrowing and risk-taking, creating a favorable environment for cryptocurrency growth. However, the Fed has indicated that the economy is growing at a moderate pace, and inflation remains above target. The rate cuts were made to support economic conditions amidst risks like slowing job growth.

A significant change in liquidity also occurred. On October 29, the Fed announced a slower pace in reducing its securities holdings starting December 1, indicating a shift toward easing liquidity rather than contracting the balance sheet. By December 10, the Fed highlighted a drop in bank reserves and began purchasing short-term Treasury bills to ensure sufficient reserves. This transition signifies a willingness to provide more financial support.

Unfortunately, market sentiment ahead of the announcement was overly optimistic. A prediction platform, Polymarket, noted an overwhelming amount of bullish sentiment leading up to Fed Chair Jerome Powell's remarks. Simultaneously, on-chain data revealed abnormal activities, including a large whale selling approximately $100 million worth of Bitcoin within an hour, which created panic among investors. While the anticipated rate cut occurred, the market's positioning leading up to it was not balanced.

Initially, Bitcoin's price action appeared bullish, hitting approximately $94,044 after the announcement. However, Santiment's data indicated that the positive-to-negative sentiment ratio had peaked before Powell's speech. Traders' excitement was largely based on anticipation, and the actual price spike resulted in modest reactions from the market.

Ethereum's performance was even more concerning. Within the same 24-hour period, Ether surged to around $3,433, with higher engagement in the positive commentary from the community. Santiment noted a surge in FOMO (fear of missing out) right after Powell's statement, but many traders who bought during the breakout ended up losing money when Ether dropped back to $3,170. This pattern reflects the classic "buy the rumor, sell the news" strategy, where the initial bullish momentum leads to short-term bearish outcomes, particularly as retail investors buy into peaks while larger holders take profits.

Structurally, the assessment is not all negative. Year-to-date, Bitcoin is down approximately 3.6%, while the S&P 500 is up 17.6%, and gold is up an impressive 61.1%. Santiment highlights this stark contrast, suggesting that a regression for Bitcoin might be overdue.

With the three rate cuts confirmed and reserves replenished through Treasury bill purchases, the case for Bitcoin to catch up to equities and gold becomes increasingly compelling. Historically, cryptocurrencies have reacted slower than traditional assets to macroeconomic shifts.

On the blockchain, so-called "smart money" seems to be anticipating this delayed reaction. Wallets holding between 10 and 10,000 BTC have accumulated 42,565 Bitcoin since November 30. However, Santiment notes that unless retail investors also start buying, which could signal a significant bullish run, the market may remain subdued for the time being.

The report stresses a cautious outlook. The latest FOMC decision supports a gradual easing narrative and better liquidity for risk assets. Following a rough year, ending 2025 with three consecutive rate cuts is a positive indication. Santiment posits that if inflation aligns with targets and economic data remains stable, 2026 could provide digital assets with the necessary space for growth. However, investors are cautioned against chasing the initial post-Fed spike, as this could lead to losses.

As of the time of writing, the total cryptocurrency market capitalization stood at approximately $3.04 trillion.

Total crypto market cap
Total cryptocurrency market cap remains above the 2021 high, as illustrated by the one-week chart. Source: TOTAL on TradingView.com