Bitcoin's Weekend Rally Fizzles as Federal Reserve Issues Recession Warning

Bitcoin has turned bearish, erasing the gains it made over the weekend. Although momentum was briefly bolstered by Trump’s announcement of a cryptocurrency reserve, persistent macroeconomic issues continue to plague the market.

Trump’s impending tariffs against major trading partners remain a concern, while the Federal Reserve has forecasted a significant decline in US GDP, potentially the worst since the onset of the pandemic. Such a broader economic downturn would undoubtedly impact the cryptocurrency landscape.

Bitcoin Plummets 10% Amid Heightened Recession Risks

The price of Bitcoin has exhibited notable volatility recently. In the past week, the Crypto Fear and Greed Index dropped to its lowest level since 2022, indicating a bearish sentiment surrounding Bitcoin fueled by several critical factors.

Trump's announcement regarding the crypto reserve caused a temporary surge in token prices, but this momentum dissipated swiftly.

Multiple reasons underlie Bitcoin's current bearish outlook. It's evident that Trump’s announcement merely provided a superficial solution to deeper economic issues. Last week's reports revealed that Bitcoin ETFs experienced unprecedented outflows totaling $2.7 billion, coinciding with the Federal Reserve Bank of Atlanta's prediction of a 1.5% decline in GDP. A more pessimistic outlook has emerged since then.

Macroeconomic Factors Forecast a Grim Future for Cryptocurrency

The Federal Reserve is now projecting a 2.8% contraction in US GDP by the end of the first quarter of 2025, a stark contrast to their previous prediction of 3.9% growth just four weeks ago.

This downturn is unprecedented since the early months of the COVID-19 pandemic, highlighting the critical macroeconomic signals that suggest Bitcoin may face bearish trends in the short term. Market liquidations have surged nearing $800 million today.

Moreover, Trump's proposed tariffs are playing a part in Bitcoin's instability. While some analysts suggest these tariffs are not the primary catalyst for the decline, they certainly contribute to the market's apprehension.

“Trump: no room left for negotiation on tariffs for Canada and Mexico; he reiterates plans to increase China's tariffs from 10% to 20%,” reported Walter Bloomberg via social media.

This situation indicates that macroeconomic influences are significantly affecting sentiment in the crypto space. With Bitcoin ETFs gaining traction, the intersection of cryptocurrency and traditional finance has grown. However, an economic recession in the US could reveal the inherent risks associated with this integration.