The Federal Reserve cut interest rates by 25 basis points on Dec. 18, setting the upper limit at 4.50%, as expected. While rate cuts are typically bullish for crypto, the market remained unimpressed.
In the past 24 hours, crypto assets have fallen 4%, reflecting concerns over the Fed's projections of higher inflation in 2025 and plans for only two interest rate cuts next year.
The Fed’s latest projections create a mixed outlook for digital assets. While lower interest rates signal a more dovish monetary policy, higher inflation expectations and a slower pace of rate cuts temper optimism.
Investors are expecting a faster rate cut cycle in 2025, which would boost risk assets like crypto.
Last week, the US Consumer Price Index (CPI) data for November, showing a 2.7% year-over-year increase, lifted market sentiment. Bitcoin surged to a new record high of $108,000 earlier this week on the back of the inflation figures coming in line with expectations.
However, enthusiasm seems to be fading, with macro uncertainty taking center stage. At the same time, more crypto ETFs are likely to be approved next year. There is also the potential for Bitcoin reserves and favorable regulation from Trump. This would offset the impact of less inflation and interest rate cuts.
Additionally, a weaker dollar due to lower interest rates may provide support for Bitcoin and other crypto assets as alternative assets. However, projected inflationary pressures could weigh on investor sentiment.
In Q1 2025, the crypto market will likely react to further economic indicators and central bank policies. The continued momentum in Bitcoin prices depends on how the Fed adjusts its approach if inflation expectations rise further.
Until then, markets remain in wait-and-see mode, with a muted reaction to what should be a bullish rate cut. #bitcoin☀️ #Xrp🔥🔥 #ETH/USDT $BTC $ETH $XRP
