The cryptocurrency market saw a significant downturn, wiping out more than $850 million due to liquidations. This event occurred after the Federal Reserve announced its decision to cut the benchmark interest rate by 25 basis points.
Although markets had anticipated a mild rate cut, signals from Chairman Jerome Powell regarding a cautious approach to interest rate adjustments in 2025 caused instability and widespread sell-offs.
Bitcoin's Liquidation Wave Affects Nearly 300,000 Cryptocurrency Traders
In the press conference, Powell noted that while inflation is decreasing "steadily," the pace of decline is "slower than expected." Therefore, the Fed adjusted its inflation forecast for 2025 to 2.5%, implying that tightening economic conditions may restrict liquidity in financial markets, including cryptocurrencies.
"Inflation has made progress towards the Committee's 2% target but remains quite high. The economic outlook is uncertain, and the Committee is attentive to risks on both sides of its dual mandate," the Federal Reserve said in a press release.
This change in monetary policy has led to a sharp decline in Bitcoin, dropping below $99,000—a decrease of more than 8% from the peak of $108,000. Similarly, the broader cryptocurrency market, including major coins like Ethereum (ETH), also suffered significant losses.
According to Coinglass, the past 24 hours witnessed an astonishing liquidation figure of $869.39 million, with $749.59 million from long positions and $119.80 million from short positions. Notably, altcoins bore the brunt of the impact, accounting for over $222 million in liquidated assets.
Crypto Liquidations. Source: Coinglass
Amidst these market fluctuations, a total of 299,335 traders were caught off guard. The largest liquidation order occurred on Binance, involving a $7 million Ethereum transaction.
Despite facing these hurdles, the sentiment among cryptocurrency traders remains surprisingly resilient. The cryptocurrency fear and greed index is currently at 75, reflecting a strong bullish outlook amid market volatility. This sentiment underscores the ongoing appeal of cryptocurrencies as an investment, even during tumultuous times.
Reinforcing this optimism, Bitcoin-related investment products saw notable inflows. For instance, BlackRock's iShares Bitcoin Trust recorded $359.6 million in new investments just on Wednesday. Meanwhile, total inflows for all spot Bitcoin ETFs reached $275.3 million.
These developments—reflecting the Fed's caution and the optimistic cryptocurrency market—illustrate a complex interaction between macro policies and cryptocurrency markets. Investors appear to be hedging economic risks by increasing their stakes in digital assets, which despite their inherent volatility, are still seen as a viable strategy for portfolio diversification.
Recent market activity highlights the impact of U.S. monetary policy on the cryptocurrency sector. As the Federal Reserve continues to navigate inflation-related challenges, the cryptocurrency market's response remains swift and pronounced.
