Last night, the market received hot news from the Federal Reserve: the federal funds rate continues to be cut by 0.25%, bringing the target range down to 4.25% - 4.5%. This is the third consecutive cut this year.
September: Cut by 0.50%
November: Cut by 0.25%
December: Further cut by 0.25%
Fed Chairman Jerome Powell, in a press conference, acknowledged that inflation is still high but close to their 2% target. He emphasized that:
From here, we will be more cautious about further interest rate cuts.
A statement that sounds safe, but it puts the whole market in a state of instability.
Why did Bitcoin drop sharply?
Immediately after the announcement, Bitcoin dropped to a low of $99,000, dragging the entire cryptocurrency market down by 4.5%, while the S&P 500 index also fell nearly 2.95%. What is the reason?
1️⃣ Fed's hawkish stance
The Fed continues to be cautious, only expecting 2 interest rate cuts in 2025, lower than market expectations (4 cuts). At the same time, the inflation forecast for 2025 has been raised from 2.1% to 2.5%, a not-so-positive signal.
The Fed's hawkish stance always puts pressure on risk assets like Bitcoin. When monetary policy does not loosen as quickly as expected, liquidity will not flow strongly into the market.
2️⃣ Disappointing statements about Bitcoin
Powell was asked whether the U.S. Government should build strategic Bitcoin reserves. He replied neutrally:
We are not allowed to own Bitcoin. If there are any changes, that is something Congress needs to consider.
Although this statement is not negative, it is also not in line with market expectations. In fact, the Fed does not own gold, so building Bitcoin reserves — if it happens — would fall under the jurisdiction of the Treasury, not the Fed. However, the short-term disappointment was enough to push Bitcoin's price lower.
What will happen next with Bitcoin?
Although the crypto market is shaking significantly, if we look at the long term, such short-term adjustments are not negative signals. The reason?
Fixed supply of Bitcoin: While inflation weakens the value of fiat currency, Bitcoin with its limited supply becomes increasingly attractive as a store of value.
Institutional confidence remains strong: Many institutional investors continue to accumulate Bitcoin despite short-term volatility.
Remember that interest rate cuts often have a positive supportive effect in the long term for assets like Bitcoin. The current market may just be in a correction phase to absorb new information.
Conclusion
The decision to cut interest rates and Powell's statements may cause short-term market volatility, but do not change Bitcoin's long-term role as a hedge against inflation.
Bitcoin's journey, like any financial revolution, takes time. So, stay calm and observe. The moment for Bitcoin may not have arrived yet, but it is getting very close. 🚀