Bitcoin and the broader cryptocurrency market are grappling with a wave of uncertainty following a massive hack on Dubai-based Bybit, fueling fears of price manipulation and suppression. The market briefly tumbled on Friday before staging a modest recovery, aided by signals from pro-crypto U.S. Senator Cynthia Lummis, who hinted at major legislative updates in the pipeline.
Yet, even as traders watch for regulatory shifts, economists are warning that a looming Federal Reserve crisis could trigger a nightmare scenario for Bitcoin and financial markets alike.
Stagflation Fears and Bitcoin’s Vulnerability
Amid speculation that Elon Musk may be eyeing drastic changes at the Federal Reserve, a fresh wave of economic data has deepened concerns over stagflation—a toxic combination of sluggish growth and persistent inflation.
A recent Bank of America survey found that expectations of stagflation in the U.S. economy have climbed to a seven-month high. Experts caution that rising inflation could force the Fed into a no-win situation: unable to cut interest rates without reigniting inflation, yet hesitant to raise rates for fear of stalling economic growth.
“Stagflation is back on the table. Policy decisions that suppress consumer demand while inflation remains high could spell trouble for risk assets like Bitcoin,” said Jack McIntyre, portfolio manager at Brandywine Global.
As a result, investors are growing increasingly cautious, with Bitcoin dropping below $90,000—its lowest point since its post-election surge following Donald Trump’s victory in November. The Crypto Fear & Greed Index has now plunged into “extreme fear” territory, reflecting widespread anxiety in the market.
Wall Street Cashing Out? Bitcoin ETF Exodus Raises Red Flags
Adding to the turmoil, Bitcoin exchange-traded funds (ETFs)—which were instrumental in driving institutional investment into the crypto space—are now seeing record outflows.
Geoff Kendrick, head of crypto research at Standard Chartered Bank, warned that Bitcoin remains vulnerable to further declines, estimating that the price could soon fall to the $80,000 range.
“While long-term fundamentals remain strong, we’re not at a ‘buy-the-dip’ moment yet,” Kendrick said. “A billion-dollar outflow day from Bitcoin ETFs is likely before we see stabilization.”
This forecast follows last year’s historic surge in Bitcoin ETF adoption, which attracted billions from Wall Street. But as risk-averse investors shift their positions, concerns are mounting that the very funds that fueled Bitcoin’s rally could now accelerate its decline.
The Fed’s Next Move: A High-Stakes Decision
The Federal Reserve’s stance on interest rates remains a key pressure point for Bitcoin’s price trajectory. While the Fed initiated a rate-cutting cycle in September, it has since slowed its pace, casting doubt on whether further cuts will come anytime soon.
Market data now suggests a 97.5% probability that rates will remain unchanged at the Fed’s next meeting in March, up sharply from 75.5% just a month ago. Some analysts even suggest the Fed may be forced to hike rates again if inflation proves more persistent than expected.
“If the Fed delays cuts until late 2025 or beyond, Bitcoin could face prolonged pressure,” said Dan Coatsworth, investment analyst at AJ Bell.
Meanwhile, Donald Trump has publicly called for rate cuts, adding a political dimension to the Fed’s dilemma. A continued delay could set up a showdown between Trump and Fed Chair Jerome Powell, as the former president has long been vocal about his disapproval of high borrowing costs.
Bitcoin’s Next Chapter: Crash or Resurgence?
Despite the current turmoil, some investors remain optimistic that Bitcoin’s long-term trajectory remains intact. James Toledano, COO at crypto platform Unity Wallet, believes that only a major macroeconomic or regulatory shockwould trigger a true market collapse.
“For now, investors are in ‘wait-and-see’ mode. A full-blown crash seems unlikely unless we see unexpected geopolitical tensions or drastic policy shifts. Most are betting on favorable regulations, particularly in the U.S.,” Toledano noted.
With Bitcoin’s price at a critical crossroads, all eyes will be on the Fed’s upcoming inflation report and ETF fund flows. If stagflation concerns escalate, the crypto market could face even steeper declines—but a shift in policy or a regulatory breakthrough could just as easily ignite another rally.
For now, the message from analysts is clear: don’t rush to buy the dip—yet.
