Bitcoin, XRP Are Falling. What’s Driving the Crypto Selloff.

Bitcoin, XRP Are Falling. What’s Driving the Crypto Selloff.

XRP, Bitcoin, and other cryptocurrencies experienced a decline on Monday, largely driven by concerns that the monetary easing cycle may not proceed as expected this year.

Bitcoin (BTC) fell 3.5% over the past 24 hours, dropping to $91,881, marking a downward trend. Similarly, XRP, the cryptocurrency used for transactions on Ripple's payment platform, dropped 3.4% to $2.44. However, XRP had seen a brief rise over the weekend, reaching $2.60 on Saturday, which may have been linked to anticipated updates from the U.S. Securities and Exchange Commission (SEC).

In 2020, the SEC filed a lawsuit against Ripple, accusing the company of selling an unregistered security through XRP. While a court in August 2024 ordered Ripple to pay a $125 million fine, a significantly lower sum than the $2 billion initially sought, Ripple's CEO Brad Garlinghouse called it a victory. The SEC appealed the ruling in October and has until January 15 to present arguments supporting its case.

Cryptocurrencies were also impacted by a stronger-than-expected U.S. jobs report released on Friday. As crypto markets typically react negatively to rising interest rate expectations, the report increased concerns that the Federal Reserve may maintain higher rates for an extended period. Bank of America analysts stated on Friday that "the cutting cycle is over," signaling an end to rate cuts.

Investors are increasingly focused on the next Federal Open Market Committee (FOMC) meeting scheduled for January 28-29. The consensus is that the Fed will keep interest rates steady, with about 33% of investors betting that no rate cuts will occur this year, according to the CME FedWatch tool.

Goldman Sachs offers a slightly more optimistic view, forecasting two rate cuts in 2025 and one in 2026, down from its previous expectation of three cuts in 2025. Analysts at Goldman believe that inflation will continue to trend toward the 2% target, supporting their more dovish outlook.

Although crypto investors have largely supported President-elect Donald Trump’s pro-crypto stance, there are concerns that potential tariffs could raise prices and hinder the Fed's ability to reduce interest rates quickly. Despite these worries, Goldman’s Hatzius believes that any tariffs raising inflation enough to prompt rate hikes would likely disrupt equity markets as well, making the outlook for inflation less clearly hawkish.