Bitcoin’s price action in early 2025 indicates a possible period of consolidation as macroeconomic factors and Federal Reserve policies weigh on its growth. A new report by Matrixport outlines the challenges facing the world’s largest cryptocurrency, suggesting that a sideways trend may dominate the coming weeks.

Bitcoin’s Weekly Dip Signals Caution

The first week of 2025 saw Bitcoin slide from $102,431 to $91,215 before rebounding to around $95,000. Despite the recovery, the weekly candle is expected to close bearish, reflecting broader concerns about the asset’s near-term trajectory.

According to Matrixport, global liquidity trends and the Federal Reserve’s increasingly hawkish policies are pivotal factors influencing Bitcoin’s price action. The report emphasizes that these macroeconomic headwinds may result in a prolonged consolidation phase, keeping the cryptocurrency range-bound at current levels.

Hawkish Fed Policies Stall Bitcoin Growth

The Federal Reserve’s restrictive monetary policies continue to limit the potential for another significant Bitcoin rally. Following the December Federal Open Market Committee (FOMC) meeting, capital inflows into Bitcoin exchange-traded funds (ETFs) stagnated, remaining at $35.9 billion—a record-breaking high but a plateau nonetheless.

Historical trends suggest that Bitcoin performs better under a dovish Fed stance. For instance, in early 2024, a dovish shift in January triggered a rally, while indecision in March caused a six-month consolidation. Only after the Fed resumed a dovish tone in Q4 did Bitcoin experience a sharp uptrend.

Liquidity Trends Lead Bitcoin’s Price Movements

Matrixport’s analysis reveals a lag between global liquidity trends and Bitcoin’s price action, often by 13 weeks. This suggests that the current liquidity conditions may signal an extended consolidation phase before any decisive price movement.

The report also notes that despite positive ETF inflows earlier, the Fed’s stance has dampened investor sentiment. With markets awaiting more clarity on rate cuts, any substantial Bitcoin rally may be postponed until monetary policies align with risk-on sentiment.

In light of these uncertainties, Matrixport advises traders to use call and put options to manage their positions effectively. These derivatives can help investors safeguard gains while maintaining exposure to potential market movements.