Written by: BitpushNews
On Wednesday afternoon local time, the Federal Reserve announced a 25 basis point cut to the benchmark policy rate but hinted that the number of rate cuts in 2025 may be lower than previously expected, causing a plunge in both the U.S. stock and cryptocurrency markets.
The Federal Reserve's latest quarterly economic forecast shows that there may be only two interest rate cuts in 2025—down from four projected in September and below the market expectation of three before the meeting. This indicates that they will be more cautious in balancing inflation and economic growth. Fed members have raised their forecasts for personal consumption expenditures (PCE) and core PCE inflation next year from 2.1% and 2.2% in September to 2.5%.
Powell described this shift as a 'new phase' of monetary policy and emphasized that after a 100 basis point cut in 2024, interest rates are now significantly closer to neutral.
As of the close on that day, all three major stock indexes fell, with the Dow initially down 2.59%, setting a record for the longest single-day consecutive decline in 50 years (falling for the 10th consecutive trading day); the S&P 500 index fell 2.95%, and the Nasdaq dropped 3.56%. The dollar surged to a two-year high, and the Chicago Board Options Exchange's volatility index (also known as the VIX index or Wall Street fear index) soared 58% to 25, reflecting heightened uncertainty among investors and increasing anxiety about future interest rates.
Did Powell's remarks 'slap' Trump?
At a press conference on Wednesday, when asked by an Axios reporter about Trump's idea of establishing a strategic Bitcoin reserve after taking office, Powell said: 'We (the Fed) are not allowed to hold Bitcoin; the Federal Reserve Act specifies what we can own, and we do not wish to change the law. This is something for Congress to consider, but we do not want the Fed to change the law.'
Bitcoin fell to $104,000 after the Fed's announcement and then hit a low near $100,256 after Powell's speech, dropping nearly 5% within 24 hours. Altcoins fell even more, with XRP, ADA, and LTC down nearly 10%.
Trump has repeatedly expressed a desire to establish a strategic Bitcoin reserve. In a CNBC interview last week, he mentioned: 'We will make great achievements in the field of cryptocurrency because we do not want any other country to embrace cryptocurrency; we want to be the leader.'
According to previous reports, Wyoming Republican Senator Cynthia Lummis is drafting a bill that will instruct the U.S. Treasury to purchase 1 million bitcoins over five years, with funding coming from Federal Reserve bank deposits and gold reserves.
Other states in the U.S. have also proposed bills to invest in Bitcoin. A Republican lawmaker in Pennsylvania introduced a bill in November allowing the Pennsylvania Treasury to invest in Bitcoin, digital assets, and cryptocurrency-based exchange-traded products.
The idea of establishing a strategic Bitcoin reserve has also faced some criticism. Former New York Federal Reserve Bank President Bill Dudley stated in a Bloomberg opinion piece last week that it would be a 'bad deal' for Americans.
An analysis report released by Barclays Bank this week suggests that funding a strategic Bitcoin reserve may require congressional approval and the issuance of new national debt. Barclays analysts stated that considering the possible ways to establish such a reserve, 'we suspect this plan will face strong resistance from the Fed.'
What will the subsequent trend be?
The crypto market currently has overly high expectations for the U.S. potentially establishing a strategic Bitcoin reserve, while ignoring other countries. Grayscale Research indicates that sovereign wealth funds in Asia and the Middle East are more likely to be the next driving force.
Grayscale's head of research, Zach Pandl, stated: 'After Federal Reserve Chair Powell's speech, Bitcoin's price plummeted, indicating that investors may be overvaluing the theoretical possibility of Bitcoin as a strategic reserve. Grayscale Research expects more nation-states to adopt Bitcoin, but the next step is more likely to be sovereign wealth funds in Asia or the Middle East, which already manage highly diversified asset pools.'
Bitwise's head of research in Europe, Andre Dragosch, stated: 'I think the biggest trouble for the Fed right now is that even though the Fed is cutting rates, the financial environment remains tight. Since September, long-term bond yields and mortgage rates have been rising, and the dollar is appreciating, which also means a tightening financial environment. The continued appreciation of the dollar also poses macro risks for Bitcoin, as dollar appreciation is also related to a contraction in the global money supply, which is often detrimental to Bitcoin and other crypto assets. In fact, the Fed's net liquidity continues to decrease. In my view, tightening liquidity and a stronger dollar are also the biggest risks faced by BTC... On the other hand, the on-chain factors for BTC remain very favorable, especially the continued decline in exchange balances, which supports the hypothesis of an ongoing supply gap for BTC.'
The decline in Bitcoin has caused a dramatic change in positions for both bulls and bears. According to charts from crypto analyst Skew, long positions were liquidated and short positions were profited as Bitcoin's price fell to the $100,000 to $98,000 range seeking support. Skew emphasized that to reverse the trend, Bitcoin's price must regain the $100,000 to $101,400 range through spot buying and establish a foothold on the daily chart.
Additionally, the 4-hour chart shows that BTC bulls need to demonstrate strong buying power around $100,000 and successfully close above $101,400 to solidify the upward trend. If this level cannot be maintained, a retest of the support level and buying accumulation zone near $98,000 may occur.
Blockchain analysis platform Santiment's analysts expressed optimism, posting on X: 'Considering that BTC is temporarily holding above $100,000, and the drop compared to the S&P 500 index is not as large as normal volatility, if it stabilizes in the next 24-48 hours, this can actually be interpreted as a strong signal.'
