Written by: Deng Tong, Golden Finance
At 3 AM, the Federal Reserve announced its interest rate decision, cutting rates by 25 basis points, followed by a monetary policy press conference led by Chairman Powell at 3:30 AM.
Although altcoins had rebounded after the previous three FOMC meetings, this time, after the Fed officially announced a 25 basis point rate cut, the market experienced 'Black Thursday,' with Bitcoin dropping below $100,000 and altcoins plummeting by 20%.
What led to 'Black Thursday'? What is the future trajectory of Federal Reserve policy? How do industry insiders view the current market conditions?
I. Risk-off mode after the peak
According to Coingecko data, the BTC price reached a historical high of $108,135 on December 17.
Subsequently, on December 18, Bitcoin's price erased about 5% of its gains, dropping to $103,765. The decline in Bitcoin triggered panic selling among crypto investors, leading to a widespread downturn in cryptocurrencies.
The massive liquidation in the derivatives market coincides with a downturn in the crypto market. $78.09 million in BTC was liquidated, and $55.65 million in ETH was liquidated, making the crypto market a bloodbath.
Total amount of cryptocurrency liquidations. Source: CoinGlass
The dominance of long position liquidations indicates that the crypto market is over-leveraged on the bullish side, primarily due to profit-taking and a shift to risk-off mode before today's Federal Reserve rate cut decision.
Before this FOMC meeting, sellers had already dominated the market, and the selling pressure reflected a typical risk-off sentiment before the event, cooling BTC.
Additionally, the continued adjustment in the crypto market also reflects the weakness of the U.S. stock market. On December 17, the S&P 500 index fell by 0.4%, closing at 6,050.61 points, and the Nasdaq composite index fell by 64 points. The Dow Jones index fell for the ninth consecutive trading day, marking the longest losing streak since 1978, closing down 0.61% at 43,339 points on December 17.
U.S. stock market performance over the past 24 hours. Source: Financial Visualizations
Before the FOMC meeting, market participants had already focused on the Federal Reserve's rate cut decision. The Fed's last interest rate decision for 2024 is a complex and highly volatile event.
II. A 25 basis point rate cut, but Powell makes hawkish remarks
This morning, the Federal Reserve concluded its 2024 annual interest rate decision, deciding to lower the benchmark rate by 25 basis points to a range of 4.25%-4.50%, marking the third consecutive rate cut in line with expectations. In this year's eight decisions, the Fed has cumulatively cut rates by 100 basis points, including one 50 basis point cut and two 25 basis point cuts, while maintaining rates unchanged on five occasions.
According to the median from the Federal Reserve's December dot plot, the Fed expects to cut rates twice in 2025, each by 25 basis points, with the September expectation for four cuts, each by 25 basis points; the Fed anticipates two cuts in 2026, each by 25 basis points, consistent with the September expectation. The median expected federal funds rate at the end of 2025 is 3.9%, up from the previous September expectation of 3.4%.
Powell's announcement that the Fed will only cut rates twice in 2025 is undoubtedly a hawkish statement for the market; additionally, the Federal Reserve Committee has raised the inflation expectation for 2025 from 2.1% to 2.5%.
Some analysts believe this is because Trump's presidency may bring about some policy adjustments, such as increasing tariffs on multiple countries, deporting millions of undocumented workers, and expanding the fiscal deficit. Powell emphasized at the press conference that the Fed's policy readjustment is a signal indicating that the central bank is prepared to adjust policies according to the needs of the U.S. economy.
Powell also stated that geopolitical turmoil remains a risk. There is significant uncertainty in predicting the economy over the next three years.
In response, Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities, stated: The Federal Reserve has signaled that they will not be as dovish as in the past, and they are leaning towards fewer rate cuts next year. I see this as a signal that the market will continue to price in less than two rate cuts, and if the data is strong enough, it may move toward zero cuts. If the Fed does not see inflation drop to a sufficient level, they will be unwilling to continue cutting rates.
"Fed's mouthpiece" Nick Timiraos pointed out: The Fed's policy statement included the phrase 'magnitude and timing,' indicating a slowdown in the pace of rate cuts to modify potential adjustments.
Swan Bitcoin Managing Director John Haar stated: Ultimately, the decision to lower rates and hint at fewer rate cuts next year indicates that future rates will be relatively hawkish.
Influenced by the Fed's hawkish remarks, U.S. interest rate futures are pricing in a rate cut of about 49 basis points in 2025, close to the Fed's dot plot prediction of 50 basis points, while the market was pricing in a rate cut of 75 basis points before the decision announcement.
Not only are there expectations for rate cuts, but regarding whether Trump will establish a Bitcoin reserve, Powell also made it clear: The Fed has no intention of holding Bitcoin. Powell stated at the FOMC post-meeting press conference: "We are not allowed to hold Bitcoin." Regarding the legal issues surrounding holding Bitcoin, Powell stated, "This is something Congress needs to consider, but we have no intention of seeking to change the law."
III. How do industry insiders view the current cryptocurrency market conditions?
Regarding short-term predictions for Bitcoin prices, cryptocurrency analyst Skew stated that BTC's decline has 'cleared positions' in a 'bidirectional' manner, as longs were stopped out and 'shorts took profits.'
Placeholder partner Chris Burniske posted on X: "If you're frustrated that you didn't sell before the market pullback after the Federal Reserve FOMC meeting, understand that you actually don't have much of an edge in predicting market reactions. Take this experience as an opportunity to slow down. Don't overtrade. In the long run, as long as you are patient, you'll be fine."
Andre Dragosch, head of European research at Bitwise, pointed out: "I think the biggest problem for the Fed right now is that despite the rate cuts, the financial environment is still tightening. Since September, long-term bond yields and mortgage rates have been rising, and the dollar has appreciated, which also indicates a tightening financial environment. The continuous appreciation of the dollar also poses macro risks for Bitcoin, as the dollar's rise is associated with a contraction in the global money supply, which is often detrimental to Bitcoin and other crypto assets. In fact, the Fed's net liquidity continues to decrease. In my view, tightening liquidity and a strong dollar are also the biggest risks facing BTC... On the other hand, the on-chain factors for BTC remain very favorable, especially the continued decline in exchange balances, which supports the hypothesis that the BTC supply gap continues to widen."
According to Coinglass data, in the past 24 hours, the total liquidation amount across the network reached $120 million, with long position liquidations amounting to approximately $109 million and short position liquidations amounting to approximately $11.0841 million.
As of the time of publication, the BTC price has dropped below $100,000, currently at $99,422.12, with a 24-hour decline of 5.8%.
Ethereum's price dropped below the $3,600 mark, currently at $3,594.01, with a 24-hour decline of 7.3%.
Sources: CoinTelegraph, CoinDesk, X, Coingecko, Jinshi Data, Golden Finance
