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The Federal Reserve’s hawkish outlook for 2025 spooked investors.

Cryptocurrencies were hit hardest. Bitcoin plummeted double-digits overnight, although it has since recovered. It is now down 2.5% to $97,400.

Ethereum plunged a whopping 12%, while XRP and Solana shed 10% and 12% respectively. Most digital assets have erased their earlier losses.

The plunge came from Powell’s hawkish stance on further cuts for 2025. Investors were banking on four cuts next year.

The aggressive tone they outlined caught traders off guard — and they didn’t wait to react.

Even though investors had anticipated a 0.25% rate cut at the Wednesday Fed meeting, the aggressive outlook for next year caught traders off guard.

Investors also fear a potential US government shutdown.

The markets are pricing in the implications after a Republican-led House rejected a Trump-backed temporary funding plan.

Now, investors are wondering if this is a bad omen.

Powell also pushed back against the possibility of a US Bitcoin strategic reserve — an idea that even Bitcoiners say it’s a bad idea.

But it’s not just cryptocurrencies that are bruised. US stocks also registered big losses, though these have quickly rebounded.

Michael Saylor’s MicroStrategy, which has been outperforming Bitcoin, is up 8% after shedding that value pre-market.

The drop was a brief win for short sellers, as well as the naysayers who have cast doubt on Saylor’s Bitcoin-only strategy. (Ben Weiss took a stab at finding out what MicroStrategy’s 1,637 employees actually do.)

As liquidity thins out amid a tussle between bears and bulls over the holidays, expect more volatility.This Santa rally might have a rocky sleigh ride ahead.

Pedro Solimano is a markets correspondent based in Buenos Aires. Got a tip? Email him at psolimano@dlnews.com.