The digital asset market experienced a sharp downturn late Thursday, reversing earlier stability, as traders digested a hawkish hold from the U.S. Federal Reserve and escalating geopolitical tensions. Bitcoin (BTC) faltered, sliding below key support levels after failing to sustain momentum following the Fed's policy announcement. While the central bank's decision to maintain the federal funds rate at 4.25%-4.50% was widely anticipated, the underlying details of their economic projections painted a more cautious picture for risk assets. According to the Federal Reserve's press release, policymakers now envision a slower path to rate cuts, projecting a year-end 2025 rate of 3.9%, consistent with their March forecast, but signaling fewer cuts in subsequent years. This was coupled with downgraded GDP growth forecasts for the current year, now at 1.4%, and higher inflation expectations, with PCE now anticipated to hit 3.0%.

Bitcoin Price Action and Market Reaction

Initially, the crypto market showed resilience. Bitcoin, trading on the BTCUSDT pair, hovered near its daily highs around $108,746 shortly after the Fed's announcement. However, the sentiment soured as the trading day progressed, particularly during the U.S. evening session. BTC price broke down decisively, shedding its gains and tumbling to a 24-hour low of $106,766 before finding tentative support. At the time of writing, Bitcoin was trading around $107,470, registering a marginal 24-hour loss but highlighting significant intraday volatility. The sell-off suggests that while the Fed's hold was priced in, the hawkish undertones from the updated 'dot plot' and sticky inflation forecasts are weighing heavily on investor appetite for high-risk assets like cryptocurrencies. This price action creates a critical trading range between the $106,700 support and the $108,800 resistance, with a break below the former potentially signaling a deeper correction.

Altcoin Weakness and Macro Headwinds

The downturn was far more pronounced across the altcoin market, indicating a classic flight to relative safety within the crypto space. Major altcoins suffered substantial losses, with some of the largest tokens by market capitalization dropping between 5% and 7%, as noted by author @rovercrc. Ether (ETH) saw its price on the ETHUSDT pair swing wildly from a high of $2,522 to a low of $2,414. Similarly, Solana (SOL) on the SOLUSDT pair dropped from a peak of nearly $160 to below $150. This broad-based weakness was exacerbated by external macroeconomic and geopolitical factors. Renewed threats of trade tariffs and heightened tensions surrounding Iran's nuclear program injected a fresh dose of fear into global markets. While traditional equity indices like the S&P 500 managed to shrug off the news and close with modest gains, the more speculative crypto market proved less resilient, unable to shake the risk-off sentiment.

Despite the bearish price action, some underlying data offers a sliver of hope for bulls. The ETH/BTC trading pair showed notable strength, rallying nearly 3.5% to 0.0234. This suggests that, on a relative basis, Ether was outperforming Bitcoin during the sell-off, a potential sign of underlying strength in the Ethereum ecosystem. Furthermore, recent U.S. economic data could challenge the Fed's hawkish stance. A softer-than-expected Producer Price Index (PPI) for May, combined with initial jobless claims matching a multi-month high, points towards a cooling economy. According to official data, continuing jobless claims rose for the third consecutive week to their highest level since November 2021. If this trend of weakening economic data persists, it may force the Federal Reserve into a more dovish pivot sooner than their current projections indicate, which could serve as a powerful catalyst for the next major rally in both crypto and traditional risk assets.