Can the Federal Reserve's decision reverse the decline in the cryptocurrency market?
On December 19, Beijing time, the Federal Reserve is about to announce its latest interest rate decision, and the market widely expects a high probability of a 25 basis point rate cut. This important event will have a profound impact not only on traditional financial markets but will also stir waves in the cryptocurrency market.
In terms of market expectations and actual actions, the market is almost certain that the Federal Reserve will cut rates by 25 basis points this time based on the CME Federal Funds futures model. This expectation stems from investors' considerations of economic slowdown and inflationary pressures. If the Federal Reserve indeed acts as expected, it will be the third rate cut of the year, totaling 100 basis points; if it is more aggressive, such as cutting rates by 50 basis points or issuing a more dovish statement after the meeting, the market reaction will be even stronger.
Regarding Bitcoin price fluctuations, in the short term, a rate cut may benefit cryptocurrencies, including Bitcoin, due to increased liquidity, leading to a price rise, but since the market has basically digested this expectation, the price increase may be limited. In the long term, Bitcoin's price is driven by supply and demand; without new significant positive news, it is difficult to sustain a large-scale rise.
In terms of changes in the value of the US dollar, rate cuts often lead to a weaker dollar. Given the relative appreciation of Bitcoin against the dollar, dollar depreciation will boost the value of digital currencies. At the same time, rate cuts raise inflation expectations, and Bitcoin, as an anti-inflation tool, will also support its price.
From the perspective of global market sentiment, during times of economic uncertainty, rate cuts may exacerbate risk aversion. Although gold is the traditional choice for risk-averse assets, Bitcoin has also gained favor with some investors in recent years. Moreover, rate cuts will prompt investors to shift their assets, changing Bitcoin's trading volume and liquidity, which will affect its price.
Internal factors in the cryptocurrency market are also crucial. Technological innovation and development continue to shape the market; advancements in blockchain technology or the birth of new cryptocurrency projects have an impact. In terms of the regulatory environment, policies in various countries and regions are constantly changing, which significantly affects market sentiment and prices.