Bitcoin Faces Multiple Headwinds as Market Sentiment Shifts on Economic Uncertainty

Fed Policy and Liquidity Constraints Cap Bitcoin Rally

Bitcoin's inability to break decisively above $90,000 has been attributed in part to the US Federal Reserve's balance sheet reduction throughout most of 2025, a strategy designed to drain liquidity from financial markets ^[2]. This trend reversed in December as employment data deteriorated and weaker consumer spending raised concerns about future economic growth ^[2].

Major retailers have signaled economic headwinds, with Target cutting its fourth-quarter earnings outlook on December 9 and Macy's warning on December 10 that inflation would pressure margins during year-end sales ^[2]. Nike reported a drop in quarterly sales on December 18, sending its shares down 10% on Friday ^[2]. Historically, reduced consumer spending creates a bearish environment for assets perceived as higher risk ^[2].

Interest Rate Uncertainty Weighs on Market

Despite signals of a shift toward less restrictive monetary policy, traders remain uncertain about the Federal Reserve's ability to cut interest rates below 3.5% in 2026 ^[2]. The odds of an interest rate cut at the FOMC meeting on January 28 fell to 22% on Friday from 24% the prior week, according to the CME FedWatch Tool ^[2].

Part of this uncertainty stems from a 43-day US government funding shutdown, which disrupted the release of November employment and inflation data and further clouded the economic outlook ^[2]. Demand for US Treasurys remained firm, with the 10-year yield holding at 4.15% on Friday after briefly approaching levels below 4% in late November, signaling growing risk aversion among traders ^[2].

Global Economic Concerns Add Pressure

Weak demand for Japanese government debt has increased contagion risks, as Japan faces 10-year bond yields above 2% for the first time since 1999 ^[2]. Japan, which holds the world's fourth-largest Gross Domestic Product and has a local currency with a $4.13 trillion monetary base, experienced a 2.3% annualized GDP contraction in the third quarter ^[2]. This is notable given that Japan maintained negative interest rates for more than a decade and relied on currency depreciation to stimulate economic activity ^[2].

Bitcoin's struggle near $90,000 reflects uncertainty around global growth and weaker US labor market data, according to the analysis ^[2]. As investors become more risk-averse, the positive impact of lower interest rates and stimulus on risk-on assets diminishes ^[2]. As a result, even if inflation reaccelerates, Bitcoin is unlikely to serve as an alternative hedge in the near term ^[2].

AI Bubble Warning from Tether CEO

Tether CEO Paolo Ardoino has warned that artificial intelligence could pose a significant danger to Bitcoin ^[1]. His logic centers on Bitcoin's close ties to global capital markets: if AI euphoria collapses, it could drag down Bitcoin as well ^[1]. The warning comes amid broader concerns about the cryptocurrency market's relationship with technology sector performance.

Debate Over Altcoin Season

Arthur Hayes has argued that altcoin season never actually ended, suggesting instead that traders simply missed the winning opportunities ^[3]. "Oh, I gotta buy these things because that is what pumped in the last season," Hayes said, warning that crypto traders should rethink their approach and pay attention to what's new in the market rather than relying on history ^[3].

"This is a new season, new things pump," Hayes emphasized ^[3]. He pointed to Hyperliquid as the "best story" of this crypto cycle so far, noting it launched at "two or three bucks" before "ripping all the way to $60" ^[3]. Hayes also cited Solana, which fell to almost "seven bucks" in 2022 before surging to nearly $300 at the beginning of this year ^[3].

"Again, there's been altcoin season. You just didn't participate in it," Hayes said ^[3].