Actions of the Federal Reserve

On December 18, 2024, the Federal Reserve announced a 25 basis point cut in the benchmark interest rate to 4.25%-4.5%.

Although this decision was within market expectations, the subsequent statement revealed a hawkish inclination, especially with a significant reduction in the expectation of future rate cuts.

Federal Reserve Chairman Powell pointed out in a press conference that only two rate cuts are expected in 2025. This news unsettled the market, raising investor doubts about the direction of future economic policies.

Response of the cryptocurrency market

The Federal Reserve's decision to cut rates quickly triggered a violent reaction in the cryptocurrency market. Bitcoin's price plummeted shortly after the announcement, briefly falling below $100,000, and ultimately sliding about 5.6% in a short period.

Ethereum and other altcoins also experienced similar crashes, with the overall cryptocurrency market capitalization declining by 7.5%. Market panic intensified, leading to a massive sell-off by investors, with liquidations amounting to $672 million within 24 hours, affecting over 236,000 traders. This phenomenon reflects the market's uncertainty regarding the Federal Reserve's policies and the risk-averse sentiment towards high-risk assets.

Weakness in the stock market

Meanwhile, the US stock market also suffered heavy losses. The Dow Jones, S&P 500, and Nasdaq composite indices all saw declines of over 2%.

The Dow Jones Index fell for the tenth consecutive trading day, marking the longest losing streak since 1974, with a specific decline of 1123.03 points; the Nasdaq Index dropped 716.37 points.

This series of data indicates that investors' uncertainty about the economic outlook and their risk-averse sentiment towards high-risk assets have become increasingly evident.

Summary

In summary, the hawkish signals from the Federal Reserve, panic selling in the cryptocurrency market, and the continued weakness in the stock market collectively led to this massive market crash.

Investors are concerned about the uncertainty and potential risks of future economic policies, leading to widespread selling.