Only two rate cuts are expected next year.
Written by: 1912212.eth, Foresight News
This morning, the Federal Reserve cut rates by 25 basis points as expected, aligning with market predictions. However, the cryptocurrency market saw a sudden change, with BTC dropping from $105,000 to a low of $99,000. Ethereum fell from around $4,000 to about $3,500.
Apart from a few tokens, the altcoin market is mostly in a downtrend, especially in the AI, MEME, and L1 categories. In the 24-hour decline, the AI sector saw WLD drop over 13%, ARKM over 17%, and RENDER over 11%. In the L1 sector, SOL dropped over 8%, SEI over 13%, and SUI over 9%. In the meme sector, PEPE/BONK/FLOKI/WIF all fell over 18%.
In contract data, $674 million worth of liquidations occurred within 24 hours, with long positions accounting for $577 million. The total number of liquidations globally exceeded 237,000, with the largest single liquidation happening on Binance ETH/USDT, valued at $4.0677 million.
The cryptocurrency market is filled with cries of despair. Chris Burniske, a partner at Placeholder, stated, "If you feel regret for not selling before the market correction post-FOMC meeting, understand that you do not have much of an advantage in predicting market reactions. Treat this experience as an opportunity to slow down. Do not overtrade. In the long run, as long as you are patient, you will be fine."
The much-anticipated bull market cycle, why is the market experiencing a significant drop at this moment?
Federal Reserve's Hawkish Rate Cut
Cryptocurrency assets are increasingly influenced by macro factors.
The Federal Reserve announced a 25 basis point rate cut on Wednesday, as expected by the market, but Fed officials significantly raised the median target range for future policy rates and also notably increased inflation expectations for next year and the year after, predicting only two rate cuts next year.
Powell stated that the decision to cut rates at this meeting was "quite difficult." The risks faced by the Federal Reserve in achieving the dual goals of controlling inflation and promoting employment are roughly balanced, and significant progress has been made in controlling inflation. Although rates have been cut by 100 basis points, interest rates are still significantly suppressing economic activity, and the Federal Reserve is "on track to continue cutting rates." However, officials need to see more progress on inflation before further cuts.
Additionally, Powell stated that the new U.S. government's policies have not yet been officially introduced, but the Federal Reserve has already done considerable preparatory work, and when specific policies are seen, they will be able to conduct a more careful and thoughtful assessment and formulate appropriate policy responses.
Powell stated in his opening remarks that the U.S. economy appears to be performing strongly overall and has made significant progress toward the goals set by the Federal Reserve over the past two years. The labor market has cooled from its previously overheated state but remains robust. Inflation levels are now closer to the Fed's long-term target of 2%. He stated that even if next year's inflation rate only falls to 2.5%, the Federal Reserve may still cut rates next year as indicated by the dot plot, as inflation will be moving in the right direction.
As Powell hinted at a slowdown in rate cuts, the U.S. stock market fell, with the Dow Jones potentially facing a drop for the 10th consecutive trading day, which would be the longest streak since October 1974 when it fell for 11 consecutive days. All 11 major sectors of the S&P 500 declined, with real estate leading the way down.
However, some are optimistic about next year's rate cuts. Kathy Bostjancic, chief economist at Nationwide Life Insurance Company, stated that the focus for next year will be Trump. Based on our predictions regarding potential anti-inflation trends (especially in the service industry), we expect the Federal Reserve to cut rates by another 75 basis points next year.
BitMEX co-founder: Trump experienced a crash around his inauguration.
Arthur Hayes, co-founder of BitMEX and chief investment officer of Maelstrom, stated in a recent article commenting on market conditions that although he is optimistic about Bitcoin's future, it does not mean Bitcoin will rise to $1 million without any significant corrections. Certainly not.
"I believe the market does not realize that Trump's ability to actually get things done is very limited in time. The market currently has overly high expectations for Trump and his team."
Arthur Hayes stated, "Before entering the collapse phase of the bull market, the cryptocurrency market will experience a painful crash around Trump's inauguration on January 20, 2025. Maelstrom (Arthur Hayes' fund) will reduce certain positions in advance and hopes to buy back at lower prices sometime in the first half of 2025. If the market forcefully breaks through around January 20, we will also acknowledge that our prediction was wrong and will re-enter after licking our wounds."
Bitcoin's 'largest buyer' MicroStrategy may pause its purchases.
MicroStrategy, the crazy buyer of Bitcoin, may pause its buying activity, temporarily losing a significant buyer in the market. Yesterday, Protos reported that MicroStrategy (MSTR) may enter a blackout period in January 2025, during which it will halt raising funds to purchase Bitcoin through 'on-market trading' (ATM) and convertible bonds. This news comes from a venture capitalist's revelation that Executive Chairman Michael Saylor "is in a blackout period throughout January and cannot issue new convertible bonds to buy Bitcoin."
Although the SEC has not explicitly prohibited insider trading during the end of the quarter and earnings release periods, many companies voluntarily implement a blackout period of 2 weeks to 1 month to avoid suspicions of insider trading. MicroStrategy plans to release its earnings report on February 5, 2025, and will join the Nasdaq 100 index on December 23.
There are various opinions in the market regarding the specific timing of the blackout period: some believe it will be a full month, while others predict it will start a 30-day period from January 14. Currently, MicroStrategy has not yet responded officially.
Summary
Although the market is in a pessimistic state, there are catalysts worth looking forward to in January. On January 20, Trump will officially take office as president. The changes under favorable policies will encourage institutions to confidently and boldly flow funds into the cryptocurrency market, thus raising the prices of crypto assets. The crypto market often follows certain market mysticism rules, such as typically experiencing significant gains around the Lunar New Year.
For example, Bitcoin saw a monthly return increase of over 44% during this year’s Lunar New Year in February. January 29 next year is the Lunar New Year. Perhaps the market will see a turning point in January.
Additionally, the FTX restructuring plan will take effect in early January, with compensation funds being distributed through fiat and stablecoins, which will see billions of dollars returning to the market.
While January is worth looking forward to, one should not be complacent. The market cycle is highly volatile, and investors need to pay attention to risk control.
