(1) Federal Reserve's hawkish statements
Although the Federal Reserve unexpectedly cut interest rates by 25 basis points last night, the dot plot reduced the expectation of 4 rate cuts next year to 2, and 4 cuts in 2026 were also cut to 2. This is considered the most hawkish dot plot of the year. Powell's post-meeting remarks were also very hawkish, emphasizing that the pace of rate cuts will slow and expressing concerns about inflation rebounding. The most provocative part was when Powell directly mentioned Bitcoin, saying, 'We are not allowed to hold Bitcoin,' which caused the market to crash.
Of course, it's not just the crash in the cryptocurrency market. The Dow Jones Industrial Average fell for ten consecutive days yesterday, marking its longest losing streak since 1974, with a drop of over a thousand points. The S&P fell nearly 3%, the largest drop on a rate cut day since 2001, and the Nasdaq dropped over 3%. Tesla fell over 8%, and so on. In summary, the previous declines in the U.S. stock market have dragged down the cryptocurrency market, and after Powell specifically mentioned it, the cryptocurrency market experienced another drop.
(2) MicroStrategy unable to purchase Bitcoin
MicroStrategy announced last night that it will pause issuing convertible bonds to purchase Bitcoin in January. The reason is that January 2025 is the lock-up period for MSTR stock, during which MicroStrategy cannot raise funds through on-market trading (ATM) to purchase Bitcoin. There are two views on the specific timing of this lock-up period: some believe it is a full month, while others predict it starts from January 14 for 30 days. As of now, MicroStrategy has not officially responded to this rumor.
In short, this news is definitely negative for Bitcoin. In recent surges of Bitcoin prices, we have seen news about MicroStrategy adding to its holdings. The inflow of funds into Bitcoin ETFs has also been affected by MicroStrategy's accumulation. Last night, only $275 million flowed into Bitcoin ETFs, which is half of the average level for this week.
However, in the long term, the current decline of Bitcoin is not a big deal!
Regarding Powell's bearish stance on Bitcoin, it is known that Trump is bullish on it, and Trump's power in the U.S. is basically at its peak now. Removing Powell is just a matter of a single statement; even if he is not removed, Arthur Hayes believes Trump can balance Powell through his nominated Treasury Secretary, Scott Bessent. In summary, the recent market decline has indeed been somewhat impulsive; rational thinking should distinguish between major and minor players.
As for MicroStrategy pausing its Bitcoin accumulation in January, this is only temporary. They will still need to buy in February and March, and assuming the available funds remain unchanged, the buying speed will increase thereafter. Additionally, there is still $16 billion in FTX compensation that will enter the market in the first quarter of next year, along with various state strategic reserve plans, which the Federal Reserve cannot control. The Federal Reserve is just a money-printing institution; the Treasury is the one that spends it.
Therefore, the long-term upward trend of Bitcoin remains unchanged. This recent correction is just a way to clean up leverage and prepare to onboard new investors.