Original title: (After the Fed’s hawkish rate cut, the overall cryptocurrency market ushered in a correction)
Original author: Alvis, MarsBit
At the latest interest rate meeting of the Federal Reserve last night, the benchmark policy rate was lowered by 25 basis points to a range of 4.25%-4.5%. Although this result was in line with market expectations, the hawkish wording in the statement and the adjustment of economic forecasts had a profound impact on market sentiment, and the cryptocurrency market as a whole suffered a sharp correction. The prices of mainstream and altcoins such as Bitcoin, Ethereum, Dogecoin, and Solana all fell significantly.
The Federal Reserve sent hawkish signals, causing market volatility
Federal Reserve Chairman Jerome Powell made it clear at a press conference that although the current rate cut was in line with market expectations, the frequency and magnitude of future rate cuts may be much lower than previous market assumptions. Powell emphasized that the Fed only plans to cut interest rates twice in 2025, and also raised its inflation forecast for 2025 from 2.1% to 2.5%. This adjustment reflects the Fed's deep concern about future inflationary pressures.
Powell specifically mentioned the uncertainty of future economic policies, including the protectionist policies that the incoming Trump administration may implement, such as tariffs on imported goods, large-scale deportation of undocumented workers, and the possible expansion of fiscal deficits, as important reasons for the Fed to maintain a more cautious attitude. These potential policy changes may further increase inflationary pressures and have a broad impact on the market.
Bitcoin leads the decline, and the crypto market is under pressure
Bitcoin prices quickly fell 5.6% to $100,000 after the Fed announced a rate cut, but have recovered as of press time.
Ethereum saw an even more significant drop, falling 6.96% to $3,600. Altcoins such as Dogecoin and Solana were not immune, with Solana falling more than 7% and Dogecoin, which was hit by high volatility and fell more than 8%. The broader altcoin market performed particularly poorly, with some second- and third-tier assets even falling more than 10%.
According to Coinglass data, in the past 24 hours, a total of 236,199 people worldwide had their positions liquidated, with a total liquidation amount of $672 million. The largest single liquidation occurred on Binance - ETHUSD_PERP was worth $4.0677 million.
Cryptocurrency analyst Skew pointed out that the rapid decline of Bitcoin cleared the long and short positions in the market, indicating that the market has entered a deep adjustment period. The price of Bitcoin once fell to the key bidding range of $100,000 to $98,000. Analysts believe that if the support level of $100,000 to $101,400 cannot be regained before the daily close, the market may continue to look for a new bottom.
Economic forecast highlights inflation risk, dot plot shows policy determination
The economic forecasts at this meeting clearly demonstrated the Fed's policy considerations. The Fed raised its economic growth forecast for 2024 and 2025, while lowering its unemployment forecast and significantly raising its inflation forecast. In particular, the larger upward revision to the 2025 inflation forecast shows that the Fed attaches great importance to long-term inflation risks.
The dot plot shows that the Fed may only cut interest rates twice in 2024. This cautious policy attitude not only shows its firm determination to control inflation, but also makes the market reassess the future liquidity environment. The US dollar and the volatility index (VIX) rose sharply due to this signal, while US Treasury yields, US stocks, gold and cryptocurrency markets were generally under pressure.
Short-term outlook: Crypto market faces continued adjustments
Against this macro backdrop, the cryptocurrency market may continue to be under pressure in the short term. Whether mainstream assets such as Bitcoin and Ethereum can hold key support levels will have an important impact on market confidence. At the same time, altcoins such as Solana and Dogecoin may perform more dramatically, as these assets generally show higher sensitivity to market fluctuations.
Powell mentioned the uncertainty of the economic outlook several times in the press conference and reiterated that future policy adjustments will be based on data. Against the backdrop of a complex global macro environment, investors need to carefully evaluate the allocation strategy of crypto assets and pay close attention to the upcoming economic data to determine the medium- and long-term trends of the market.
Despite the current low market sentiment, analysts generally believe that this round of adjustments also provides patient long-term investors with opportunities for strategic layout. The price correction of mainstream crypto assets may lay the foundation for future increases, and some altcoins that have been wrongly killed may have a higher rebound space when the market recovers.
Attached is the original text of Powell’s statement:
Recent indicators suggest that economic activity continues to expand at a solid pace. Labor market conditions have generally eased since the beginning of the year, with the unemployment rate increasing somewhat but remaining low. Inflation has moved toward the Committee's 2 percent objective but remains slightly elevated.
The Committee seeks to achieve maximum employment and 2 percent inflation over the longer term. The Committee judges that the risks to achieving its employment and inflation goals are roughly balanced. The economic outlook is uncertain, and the Committee is mindful of two-way risks to its dual mandate.
To support its goals, the Committee decided to lower the target range for the federal funds rate by 25 basis points to 4.25% to 4.5%. The Committee will carefully assess incoming data, the changing outlook, and the balance of risks as it considers the size and timing of further adjustments to the target range for the federal funds rate. The Committee will continue to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities. The Committee is firmly committed to supporting maximum employment and returning inflation to its 2% objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the achievement of the Committee's goals. The Committee's assessments will take into account a wide range of information, including its readings of labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting in favor of the monetary policy action were: Chairman Jerome Powell, Vice Chairman John Williams, Thomas Barkin, Michael Barr, Raphael Bostic, Michelle Bowman, Lisa Cook, Mary Daly, Philip Jefferson, Adrienne Kugler and Christopher Waller. Beth M. Hammack voted against the action, preferring to maintain the target range for the federal funds rate at 4.5% to 4.75%.
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