Written by: 1912212.eth, Foresight News
This morning, the Federal Reserve cut rates by 25 basis points as expected by the market. However, the crypto market experienced a sudden turnaround, with BTC plummeting from $105,000 to a low of $99,000. Ethereum dropped from around $4,000 to about $3,500.
Apart from a few cryptocurrencies, the altcoin market is largely in a downward state, especially AI, MEME, and L1 categories. In the past 24 hours, the AI sector saw WLD drop over 13%, ARKM drop over 17%, and RENDER drop over 11%. In the L1 sector, SOL dropped over 8%, SEI dropped over 13%, and SUI dropped over 9%. In the meme sector, PEPE/BONK/FLOKI/WIF all fell over 18%.
In terms of contract data, $674 million was liquidated across the network in the past 24 hours, with $577 million in long positions liquidated, and over 237,000 individuals liquidated globally, with the largest single liquidation occurring on Binance ETH/USDT, valued at $4.0677 million.
The crypto market is in mourning, with Placeholder partner Chris Burniske stating: 'If you feel regret for not selling before the market correction following the Fed's FOMC meeting, understand that you don't have a significant advantage in predicting market reactions. Treat this experience as an opportunity to slow down. Don't overtrade. In the long run, as long as you are patient, you will be fine.'
Why is the much-anticipated bull market cycle experiencing a significant downturn at this moment?
Federal Reserve Hawkish Rate Cut
Cryptocurrency assets are increasingly influenced by macro factors.
The Federal Reserve announced a rate cut of 25 basis points on Wednesday, as the market expected, but Fed officials significantly raised the median target range for future policy rates and notably increased inflation expectations for next year and the year after, predicting only two rate cuts next year.
Powell stated that the decision to cut rates at this meeting was 'relatively difficult,' as the risks faced by the Fed in achieving the dual goals of controlling inflation and promoting employment are roughly balanced, and significant progress has been made in controlling inflation. Although rates have already been cut by 100 basis points, they still significantly suppress economic activity, and the Fed is 'on track to continue cutting rates.' However, officials need to see more progress on inflation before further cuts.
Additionally, Powell mentioned that the new U.S. government's policies have not yet officially been introduced, but the Fed has done considerable preparatory work so that when specific policies are finally seen, they can conduct a more careful and thoughtful evaluation and develop appropriate policy responses.
Powell stated in his opening remarks that the U.S. economy appears to be performing strongly overall and has made significant progress toward the goals set by the Federal Reserve over the past two years. The labor market has cooled from its previously overheated state but remains robust. Inflation levels are closer to the Fed's long-term target of 2%. He noted that even if next year's inflation rate only decreases to 2.5%, the Fed may still cut rates next year as indicated by the dot plot, as inflation is moving in the right direction.
As Powell hinted at a slowdown in rate cuts, the U.S. stock market saw a downturn, with the Dow Jones index possibly falling for the 10th consecutive trading day, which would mark the longest streak of daily declines since October 1974. All 11 major sectors of the S&P 500 declined, with real estate leading the drop.
However, some remain optimistic about the rate cut situation next year. Kathy Bostjancic, Chief Economist at Nationwide Life Insurance Company, stated that next year's focus will be on Trump. Based on our predictions regarding potential anti-inflation trends (especially in the service industry), we expect the Fed to cut rates by another 75 basis points next year.
BitMEX co-founder: Trump experiences a sharp drop before and after the inauguration ceremony
Arthur Hayes, co-founder of BitMEX and Chief Investment Officer of Maelstrom, commented on the market situation in a recent article, stating that while he is optimistic about Bitcoin's future, this does not mean that Bitcoin will rise to $1 million without any major corrections. Of course not.
'I think the market does not realize that Trump actually has a very limited time to get things done. The market currently has overly high expectations for Trump and his team.'
Arthur Hayes stated, 'Before entering the collapse phase of a bull market, the cryptocurrency market will experience a painful crash around the time of Trump's inauguration on January 20, 2025. Maelstrom (Arthur Hayes's fund) will reduce certain positions in advance and hopes to buy back at lower prices sometime in the first half of 2025. If the market forcefully breaks out around January 20, we will also acknowledge our predictive error and will re-enter after licking our wounds.'
MicroStrategy, the 'largest buyer' of Bitcoin, may pause its purchases
Bitcoin's fervent buyer MicroStrategy may pause its purchasing activities, temporarily losing a major buyer in the market. Yesterday, Protos reported that MicroStrategy (MSTR) may enter a lock-up period starting January 2025, during which it will suspend fundraising for Bitcoin purchases through 'at-the-market' (ATM) stock and convertible bond issuances. This information comes from a venture capitalist's leak, stating that Executive Chairman Michael Saylor will be in a lock-up period throughout January, unable to issue new convertible bonds to purchase Bitcoin.
Although the SEC has not explicitly banned insider trading during the end of the quarter and earnings release periods, many companies voluntarily implement a lock-up period of 2 weeks to 1 month to avoid insider trading suspicions. MicroStrategy plans to release its earnings report on February 5, 2025, and will join the Nasdaq 100 index on December 23.
There are various opinions in the market regarding the specific timing of the lock-up period: some believe it is a total month-long lock-up, while others predict it will start on January 14 for 30 days. Currently, MicroStrategy has not yet made an official response.
Summary
Despite the market being in a pessimistic state, there are still catalysts to look forward to in January. On January 20, Trump will officially be inaugurated as president. The changes under favorable policies will encourage institutions to confidently channel funds into the crypto market, thus boosting cryptocurrency asset prices. The crypto market often follows certain market mystical laws, such as typically seeing significant gains during the Lunar New Year.
For instance, Bitcoin's monthly return surged over 44% during this year's Lunar New Year in February. January 29 next year marks the Lunar New Year. Perhaps the market will see a turnaround in January.
Additionally, the FTX restructuring plan will take effect in early January, with compensation funds being returned through fiat and stablecoins, bringing back tens of billions of dollars to the market.
Although January next year is worth looking forward to, we should not be complacent. The market cycle is highly volatile, and investors need to pay attention to risk control.
