Recently, Fed Chairman Powell's remarks acted like a bombshell, triggering a dramatic market reaction. His comments directly caused Bitcoin's price to swiftly pull back from the week's high. According to the latest market data, the market capitalization of Bitcoin and other digital currencies evaporated by about 7.5%, and market panic was set to explode.
Federal Reserve's tough stance: Refusal to accept Bitcoin.
Powell's latest statements have undoubtedly shocked the entire cryptocurrency market. In a recent public speech, the Federal Reserve Chairman made it clear that the Fed not only will not hold Bitcoin but also has no intention of modifying the existing legal framework to accommodate the needs of digital currencies. Powell pointed out that Bitcoin and other digital currencies fundamentally differ from traditional monetary systems, and the Fed's core function remains the management of legal tender, maintaining monetary stability, and ensuring the safety of the financial system.
This statement directly hit the confidence of cryptocurrency enthusiasts, especially those who hoped for the Fed to act as a 'backer'. Trump proposed in 2020 the establishment of a 'national strategic Bitcoin reserve' plan, attempting to make Bitcoin one of the official asset reserves of the United States. This idea once attracted significant attention from some investors, who believed that if the Fed accepted Bitcoin, it could bring stronger credit support and broader acceptance for this digital asset.
However, the Federal Reserve's stance has undoubtedly dampened this plan. According to information from the prediction market Polymarket, the possibility of Bitcoin being used as a strategic reserve dropped from a peak of 40% on the 18th to 34% after Powell's speech.
Powell's firm rejection of Bitcoin is not only based on Bitcoin's volatility and decentralization but also includes the legal status issues of Bitcoin and other digital currencies. According to the Federal Reserve Act, the Fed cannot hold non-legal tender, especially decentralized digital assets like Bitcoin. Even if the Trump administration proposes similar policies, the existing legal framework makes such proposals unfeasible.
Bitcoin plummets, retail panic.
After Powell's remarks, the cryptocurrency market immediately reacted violently. Bitcoin's price plummeted within just a few hours, quickly falling below the $100,000 mark, losing over 5% of its market capitalization in the short term. Market panic spread rapidly, trading volumes surged, and many retail investors chose to cut losses and exit.
Not only Bitcoin, but other major digital currencies like Ethereum and Dogecoin also did not escape, with prices experiencing significant pullbacks. Ethereum briefly fell below $3,000, while Dogecoin's decline exceeded 10%, with over 250,000 people being liquidated.
This price volatility indicates that market sentiment is significantly affected, especially for short-term speculators and retail investors. The Fed's tough stance is undoubtedly a heavy blow. Although the digital currency market itself is full of volatility, the panic caused by policy changes is often more impactful than other factors. Some investors are beginning to question whether digital currencies can truly break free from the constraints of the traditional financial system and claim a place in the global economic system.
In this market turmoil, we can not only observe Bitcoin's price fluctuations but also feel the market's heightened sensitivity to changes in Federal Reserve policy. For many retail investors, the uncertainty and volatility in the market may lead them to choose to exit, while for institutional investors, it may be a moment to reassess risks and opportunities.
What is the future trend of Bitcoin?
The Federal Reserve's hawkish stance undoubtedly puts pressure on the short-term trends of Bitcoin and other digital currencies. But from a longer-term perspective, does the current market turbulence mean the end of Bitcoin's bull market? Or is this just a short-term adjustment that has yet to change its long-term bullish fundamentals?
According to technical analysis, Bitcoin's current price adjustment may be a common short-term pullback in a bull market. Volatility is itself a norm in the digital currency market, especially during periods of large capital inflows and significant policy uncertainty. Bitcoin has undergone similar price pullbacks multiple times, but in the long run, it remains quite attractive. Although the Fed's rhetoric has temporarily affected market sentiment, long-term monetary policy and demand dynamics will still support Bitcoin's value.
From a technical chart perspective, Bitcoin's current price pullback is at a critical support range. Based on recent price fluctuations, Bitcoin has encountered support near the psychological threshold of $100,000, which has repeatedly been a starting point for rebounds. In the short term, if Bitcoin can stabilize within this price range and gain effective support, market sentiment may improve, leading to a technical rebound.
Moreover, the market's 'panic selling' may provide certain opportunities for those with a long-term investment perspective. If Bitcoin can stabilize within this turbulent range, then as the market matures in its understanding and adapts to the Fed's stance, there may be renewed upward momentum.
It is important to note that the future of the digital currency market is also influenced by the global regulatory environment and institutional investors. Although the Federal Reserve has clearly stated that it does not support Bitcoin, regulatory policies in the U.S. and globally are still evolving. The U.S. Securities and Exchange Commission (SEC) and other financial regulatory bodies are gradually clarifying their regulatory policies regarding digital currencies. While in the short term, the Fed's statements may exert some suppressive effects on the market, in the long run, the global trend towards clearer and more transparent regulation of digital currencies may bring a more stable development environment to the market.
At the same time, more and more institutional investors are entering the cryptocurrency market. Bitcoin has been regarded by some large investment funds as digital gold and included in asset allocations. The continuous influx of institutional funds and bullish confidence in Bitcoin will somewhat alleviate the negative impact of short-term policy fluctuations on the market. Especially for institutional investors seeking to hedge risks in traditional financial markets, Bitcoin remains highly attractive.
The Trump administration may change its policy direction.
Although the Fed's stance is firm, the Trump administration's supportive attitude towards digital currencies may bring some new hope to the market. During Trump's presidency, he publicly expressed support for the development of Bitcoin and digital currencies, arguing that digital currencies could promote economic innovation and financial freedom. The 'national strategic Bitcoin reserve' plan proposed by Trump, although not supported by the Fed, provided a policy framework for the development of Bitcoin and digital currencies.
If Trump takes office again, significant changes in digital currency policy may occur. Trump tends to adopt more lenient regulatory policies and supports financial innovation, which may provide a favorable policy environment for the legitimization and mainstreaming of digital assets like Bitcoin. Especially against the backdrop of Trump's opposition to traditional financial institutions and support for decentralized financial systems, digital currencies may receive more policy support, further promoting market development.
However, the divergence in digital currency policy between the Federal Reserve and the Trump administration may become a key factor in future market volatility. As the central bank of the United States, the Fed's policy decisions directly affect market liquidity and economic stability, while the Trump administration is more inclined to promote the development of digital currencies and blockchain technology, believing that these innovations can provide a competitive advantage for the U.S. economy.
This policy game may continue to play out in the coming years. If the Trump administration returns to power and continues to push for regulatory reforms in digital currencies, Bitcoin and other digital currencies may usher in a policy spring. However, if the Fed's policies maintain their current conservative stance, the policy risks for the digital currency market will still exist, and short-term market volatility will correspondingly increase.
How investors can find opportunities amid volatility
The current market turbulence has caused panic among many investors, but for long-term bullish investors, this volatility may instead present an opportunity to accumulate assets. How to find opportunities in this uncertain market environment has become a question every Bitcoin investor needs to consider.
Although the short-term market fluctuations are concerning, they also provide low buying opportunities for investors with a long-term investment perspective. As Bitcoin's price falls to relative lows, some investors may choose to buy the dip, taking advantage of the price trough brought about by market panic. In the historical context of the past few years, Bitcoin has experienced multiple large fluctuations, but after each adjustment, its price usually manages to rise again. Therefore, the current pullback may be a rare entry opportunity, especially for investors optimistic about Bitcoin's long-term prospects.
For long-term holders of Bitcoin, short-term price fluctuations should not be the primary factor in determining investment strategy. As a decentralized digital asset, Bitcoin has value independent of the traditional monetary system. In the long run, its market demand and investment return potential remain strong. Those who can persist in holding for the long term may achieve good returns in the coming years.
However, for those with more short-term investment goals, it is necessary to pay closer attention to market volatility and policy risks. In the short term, the digital currency market may still experience greater uncertainty, so these investors need to remain flexible, adjust their strategies in a timely manner, and avoid making erroneous decisions in market panic.
Overall, despite facing policy uncertainties and short-term fluctuations, Bitcoin still possesses long-term growth potential. Both long-term investors and short-term traders need to strengthen risk control, ensuring they maintain a stable investment mindset amid volatility and seize future development opportunities.