Recently, the cryptocurrency market has experienced a significant drop, mainly due to investors' concerns about the Fed possibly taking a hard stance, leading to fewer interest rate cuts than expected in 2025.
Bitcoin (CRYPTO: BTC), the largest cryptocurrency in the world, has continued to decline since the weekend. As of Monday afternoon Eastern Time, Bitcoin was trading at approximately $93,260, down about 4% from last Thursday's high of over $102,000. Meanwhile, Dogecoin (CRYPTO: DOGE) fell by 3.2%, and XRP (CRYPTO: XRP) also dropped by 3.1%.
The macro environment has a significant impact on cryptocurrencies
Last week, after the Fed concluded its last meeting of the year, the stock market immediately fell. The Fed indicated that it expects to cut rates only twice next year, whereas it previously predicted four cuts during the September meeting. Although many investors and market experts had anticipated this, the market still reacted unexpectedly to the news.
Additionally, investors are paying more attention to the overall macro environment. Despite durable goods orders in November falling short of expectations, rising U.S. Treasury yields usually signal bad news for Bitcoin and the entire cryptocurrency market.
Bitcoin was once seen as a hedge against inflation, but now it is affected not only by U.S. Treasury yields but also by falling gold prices. At the same time, the dollar continues to strengthen, and Bitcoin, as an alternative currency, often moves inversely to the dollar.
Traders' expectations for a change in the Fed's interest rate cuts
Traders increasingly believe that the Fed will cut rates fewer times in 2025 than previously expected. Over 91% of traders expect the Fed to pause rate cuts at the January meeting, and 37.5% believe there will only be one cut next year.
However, some companies continue to buy Bitcoin. For example, Michael Saylor's company MicroStrategy purchased 5,262 Bitcoins last week for $561 million. Saylor has predicted that Bitcoin's price will soar to $13 million by 2045.
The market may be turbulent in the new year
Due to Bitcoin's significant gains this year, a correction is more likely. It is expected that Bitcoin will continue to fluctuate as the market seeks clues regarding inflation and interest rate trends.
Currently, most traders believe that inflation will remain stable and above the Fed's desired 2% target. However, investors are also preparing for the potential inflationary impact of tax cuts and tariffs proposed by Trump.
If the employment report in December or the consumer price index in early January performs poorly, the market trend could change instantly. Due to the higher volatility of XRP and Dogecoin compared to Bitcoin, both tokens may experience larger gains and losses than Bitcoin.
Personal opinion
I am personally optimistic about Bitcoin and believe that XRP is worth holding a small speculative position. However, I currently have no interest in Dogecoin.
As for how to invest $1,000 now, it is recommended to make decisions based on individual risk tolerance and investment goals. Additionally, one can pay attention to some professional investment analysis and advice.
Please note that Bram Berkowitz holds positions in Bitcoin and XRP, and (The Motley Fool) also holds and recommends these assets. Investing involves risks, and decisions should be made cautiously.
