United

Jerome Powell

Kevin

Bitcoin

Key takeaways:
<ul>
 <li>
 Leverage surged in the crypto market, with $527 million in liquidations in 24 hours, signaling growing caution among traders.</li>
 <li>
 Tighter liquidity and increasing AI debt risks push traders to exit riskier assets, contributing to a market correction.</li>
</ul>
The cryptocurrency market saw a correction on Monday, with Bitcoin (<a href="/bitcoin-price">BTC</a>) retesting the $85,000 level and Ether (<a href="/ethereum-price">ETH</a>) dropping to $2,900. Traders became more risk-averse after a survey showed worsening economic conditions in the United States and changes in investor expectations regarding the proposed options for the next US Federal Reserve chair.
<figure>
 <img src="https://s3.cointelegraph.com/uploads/2025-12/019b2426-c1ea-7aed-9739-7dc51bca346e.png" title="" alt="Bitcoin, altcoins sell off as Fed chair switch-up, AI bubble fears spook markets">
 <figcaption style="text-align: center;">
 US five-year Treasury (left) vs. Total crypto capitalization, USD. Source: <a href="https://www.tradingview.com/symbols/TVC-US10Y/" rel="nofollow noopener" target="_blank" title="https://www.tradingview.com/symbols/TVC-US10Y/">TradingView</a>
 </figcaption>
</figure>
The resilience of the US five-year Treasury after hitting a low of 98.64 on Wednesday points to a more defensive shift in positioning as liquidity conditions tightened across global markets. That caution comes amid mounting fiscal pressures after a recent tax and spending package extended credits and raised the US <a href="https://cointelegraph.com/news/bitcoin-bull-paul-tudor-jones-sees-massive-rally-amid-surging-us-deficit-why" rel="" target="_self" title="https://cointelegraph.com/news/bitcoin-bull-paul-tudor-jones-sees-massive-rally-amid-surging-us-deficit-why">debt ceiling</a> by $5 trillion. Also, the Federal Reserve said it will begin purchasing about $40 billion per month in short-dated Treasury bills as part of a technical reserve-management operation aimed at maintaining ample liquidity, a move policymakers have stressed is not a return to broad quantitative easing or a shift in the Fed’s monetary policy stance.
The consumer sector remains a concern, as a CNBC survey <a href="https://www.cnbc.com/2025/12/15/inflation-causing-less-holiday-spending-cnbc-all-america-economic-survey.html" rel="noopener nofollow" target="_blank">revealed</a> that 41% of Americans plan to spend less during the holidays this year, up from 35% in 2024. Additionally, 61% of respondents cited affordability problems due to stagnant wages amid rising prices. US October retail sales data will be released on Tuesday, along with November nonfarm payrolls figures.
<figure>
 <img src="https://s3.cointelegraph.com/uploads/2025-12/019b2426-c5ba-7581-8379-91cecd25a8c8.png" title="" alt="Bitcoin, altcoins sell off as Fed chair switch-up, AI bubble fears spook markets">
 <figcaption style="text-align: center;">
 Total crypto market open interest, USD. Source: CoinGlass
 </figcaption>
</figure>
Excessive leverage in the cryptocurrency market continues to be a major issue, with futures open interest standing at $135 billion. Over $527 million worth of bullish leveraged <a href="https://cointelegraph.com/news/crypto-liquidations-nearly-triple-overheating-leverage">positions have been liquidated</a> in the past 24 hours, causing traders to worry about further downside. Weakness in the artificial intelligence sector has also driven traders to increase cash positions, exiting riskier asset classes like cryptocurrencies.
Hedge fund giant Bridgewater Associates reportedly said that tech firms’ heavy reliance on debt markets to fund AI investments has reached a dangerous phase, <a href="https://finance.yahoo.com/news/bridgewater-warns-big-techs-reliance-152235389.html" rel="noopener nofollow" target="_blank">according</a> to Reuters. “Going forward, there is a reasonable probability that we will soon find ourselves in a bubble," Bridgewater's co-chief investment officer Greg Jensen wrote in a note.
<figure>
 <img src="https://s3.cointelegraph.com/uploads/2025-12/019b2426-c9cb-70a7-ad2e-5322ce726cae.png" title="" alt="Bitcoin, altcoins sell off as Fed chair switch-up, AI bubble fears spook markets">
 <figcaption style="text-align: center;">
 Annualized funding rate on Monday. Source: CoinGlass
 </figcaption>
</figure>
Demand for leverage on short (sellers) positions surged on Bybit, pushing the annualized funding rate below zero. This unusual situation, where longs (buyers) are paid to keep their leveraged positions open, rarely lasts as arbitrage opportunities emerge. Still, since the Oct. 10 crash, liquidity has become much tighter, with some market makers likely facing sizable losses.
Part of Monday’s decline in the US stock market can be attributed to a decrease in Kevin Hassett’s odds of replacing Jerome Powell as the next Fed chair. CNBC reported that President Donald Trump’s inner circle pushed for someone perceived as more independent. Trump said on Friday that Kevin Warsh would also be a great fit, which eased concerns about the fragility of the US dollar.
<figure>
 <img src="https://s3.cointelegraph.com/uploads/2025-12/019b2426-ce6e-73b2-8b51-33c98d52de92.png" title="" alt="Bitcoin, altcoins sell off as Fed chair switch-up, AI bubble fears spook markets">
 <figcaption style="text-align: center;">
 S&amp;P 500 index (left) vs. US dollar strength Index (right). Source: TradingView
 </figcaption>
</figure>
The <a href="https://cointelegraph.com/news/bitcoin-rallies-as-dxy-strengthens-is-it-a-trap-for-bulls">US Dollar Index</a> (DXY) found support at the 98 level after four consecutive weeks of decline. This stability suggests higher confidence in the US government’s ability to avoid a recession, which is somewhat supportive for the stock market but less so for cryptocurrencies.
Related: <a href="https://cointelegraph.com/news/global-macro-analyst-luke-gromen-bearish">Bitcoin to $40K? Macro analyst Luke Gromen turns bearish on Bitcoin</a>
Bitcoin and Ether are generally seen as part of an independent financial system, so the relative strength of the US dollar reduces the demand for alternative hedges. The excessive leverage in the cryptocurrency market, combined with broader macroeconomic uncertainty, is likely to continue weighing on prices.
This article is for general information purposes and is not intended to be and should not be taken as, legal, tax, investment, financial, or other advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph. While we strive to provide accurate and timely information, Cointelegraph does not guarantee the accuracy, completeness, or reliability of any information in this article. This article may contain forward-looking statements that are subject to risks and uncertainties. Cointelegraph will not be liable for any loss or damage arising from your reliance on this information.

Bitcoin, altcoins sell off as Fed chair switch-up, AI bubble fears spook markets

Cointelegraph

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