Written by: 1912212.eth, Foresight News
This morning, the Federal Reserve cut rates by 25 basis points as expected, aligning with market expectations. However, the crypto market experienced a sudden change, with BTC dropping from $105,000 to a low of $99,000. Ethereum fell from around $4,000 to around $3,500.
Aside from a few cryptocurrencies, 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%, RENDER over 11%, while in the L1 sector, SOL dropped over 8%, SEI over 13%, and SUI over 9%. In the meme sector, PEPE/BONK/FLOKI/WIF all saw declines over 18%.
In terms of contract data, the 24-hour total liquidation across the network reached $674 million, with long positions liquidated totaling $577 million. The total number of liquidated individuals globally exceeds 237,000, with the largest single liquidation occurring on Binance ETH/USDT, valued at $4.0677 million.
The crypto market is filled with cries of despair. Chris Burniske, partner at Placeholder, stated: "If you feel frustrated about not being able to sell before the market correction following the Federal Reserve FOMC meeting, please understand that you actually don’t have a significant advantage in predicting market reactions. Treat this experience as an opportunity to slow down. Don’t overtrade. In the long run, as long as you have patience, you will be fine."
In the much-anticipated bull market cycle, why is the market experiencing a significant decline at this moment?
Federal Reserve's hawkish rate cut
Crypto assets are increasingly affected by macro factors.
On Wednesday, the Federal Reserve announced a 25 basis point rate cut, as expected by the market, but Federal Reserve officials significantly raised the median of the future policy rate target range, and inflation expectations for next year and the following year were also notably increased, with only two rate cuts expected next year.
Powell stated that the decision to cut rates at this meeting was 'relatively difficult.' The risks the Federal Reserve faces 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, before further rate cuts, officials need to see more progress on inflation.
Additionally, Powell stated that the policies of the new U.S. government have not yet been officially released, but the Federal Reserve has already done a considerable amount of preparatory work. When specific policies are finally seen, it will allow for a more careful and thoughtful assessment and appropriate policy responses.
Powell stated in his opening remarks that the overall performance of the U.S. economy appears strong 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 previous overheating state but remains robust. Inflation levels are now closer to the Federal Reserve's long-term target of 2%. He indicated that even if next year's inflation rate only drops to 2.5%, the Federal Reserve may still cut rates next year as indicated by the dot plot, as inflation is moving in the right direction.
As Powell hinted at a slowing pace of rate cuts, the U.S. stock market experienced a decline, with the Dow Jones Industrial Average potentially facing its 10th consecutive day of losses, which would be the longest string of daily declines since October 1974. All 11 major sectors of the S&P 500 fell, with real estate leading the decline.
However, some remain optimistic about interest rate cuts next year. 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 sector), the Federal Reserve is expected to cut rates by another 75 basis points next year.
BitMEX co-founder: Trump experienced a crash around the time of his inauguration.
Arthur Hayes, co-founder of BitMEX and Chief Investment Officer at Maelstrom, stated in a recent article commenting on the market situation that while he is optimistic about Bitcoin's future, this does not mean that Bitcoin will rise to $1 million without any major corrections. Certainly not.
"I believe the market does not realize that Trump's actual time to get things done is very limited. The market currently has overly high expectations of Trump and his team."
Arthur Hayes stated, "Before the cryptocurrency market enters the collapse phase of the bull market, it will undergo a painful crash around the time of Trump's inauguration on January 20, 2025. Maelstrom (Arthur Hayes's fund) will reduce certain positions in advance and hopes to buy back at a lower price sometime in the first half of 2025. If the market forcibly breaks through around January 20, we will also acknowledge our misjudgment and will get back in after licking our wounds."
MicroStrategy, the 'largest buyer' of Bitcoin, may pause its purchases.
The crazy buyer of Bitcoin, MicroStrategy, may pause its purchasing actions, temporarily losing a major buyer in the market. Yesterday, Protos reported that MicroStrategy (MSTR) may enter a lock-up period in January 2025, during which it will suspend raising funds through 'on-market transactions' (ATM) to purchase Bitcoin. This information comes from a venture capitalist's leak, stating that Executive Chairman Michael Saylor will be in a lock-up period throughout January, unable to issue new convertible bonds to purchase Bitcoin.
Although the SEC has not explicitly banned insider trading during the quarter-end and earnings release periods, many companies voluntarily implement lock-up periods ranging from 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.
Regarding the specific time of the lock-up period, there are various opinions in the market: some believe it is a whole month lock-up, while others predict it starts from January 14 for 30 days. Currently, MicroStrategy has not made an official response.
Summary
Although the market is in a pessimistic state, there are still catalysts worth looking forward to in January. On January 20, Trump will be officially inaugurated as president. Changes under favorable policies will encourage institutions to confidently channel funds into the crypto market, thereby boosting crypto asset prices. The crypto market often follows certain esoteric market rules, such as a notable increase typically occurring around the Lunar New Year.
For example, Bitcoin's monthly return surged over 44% during this year's Lunar New Year in February. The next Lunar New Year falls on January 29. 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.
Although January next year is worth looking forward to, we cannot let our guard down. Market cycles are highly volatile, and investors should pay attention to risk control.
