Author: Deng Tong, Golden Finance
At 3 a.m., the Federal Reserve announced its interest rate decision, cutting interest rates by 25 basis points. Subsequently, Federal Reserve Chairman Powell held a monetary policy press conference at 3:30 a.m.
Although altcoins rebounded after the previous three FOMC meetings, after the Fed officially announced a 25 basis point rate cut, the market ushered in a "Black Thursday", with Bitcoin falling below $100,000 and altcoins falling by 20%.
What caused "Black Thursday"? What will be the future trend of the Fed's policy? What do industry insiders think of the current market situation?
1. Risk-averse mode after the high point
According to Coingecko data, the BTC price reached an all-time high of $108,135 on December 17.
Then, on December 18, the price of Bitcoin erased about 5% of its gains to $103,765. The decline in Bitcoin triggered panic selling among crypto investors, and cryptocurrencies fell across the board.
The massive liquidation in the derivatives market was accompanied by the downturn in the crypto market. $78.09 million of BTC was liquidated and $55.65 million of ETH was liquidated, and the crypto market was in a bloodbath.
Total cryptocurrency liquidations. Source: CoinGlass
The dominance of long liquidations suggests that the crypto market is overleveraged on the bullish side, mainly due to profit-taking and risk-off mode ahead of today’s Fed rate cut decision.
Sellers have dominated the market ahead of this FOMC meeting, and the seller pressure reflects the typical risk aversion before the event, with BTC cooling down.
In addition, the continued adjustment of the crypto market also reflects the weakness of the US stock market. On December 17, the S&P 500 fell 0.4% to close at 6050.61 points, and the Nasdaq Composite fell 64 points. The Dow Jones Industrial Average fell for the ninth consecutive trading day, the longest losing streak since 1978, closing down 0.61% at 43,339 points on December 17.
US stock market 24-hour performance Source: Financial Visualizations
Ahead of the FOMC meeting, market participants have focused on the Fed's rate cut decision. The Fed's last rate decision in 2024 is a complex and highly volatile event.
2. A 25 basis point rate cut, but Powell made hawkish remarks
This morning, the Federal Reserve concluded its 2024 annual interest rate decision. The bank decided to cut the benchmark interest rate by 25 basis points to a range of 4.25%-4.50%, the third consecutive rate cut, in line with expectations. In the eight decisions this year, the Federal Reserve has cut interest rates by a total of 100 basis points, including one 50 basis point cut, two 25 basis point cuts, and five other cuts to keep interest rates unchanged.
According to the median of the Fed's December dot plot, the Fed expects to cut interest rates twice in 2025, each by 25 basis points, and four times in September. The Fed expects to cut interest rates twice in 2026, each by 25 basis points, which is consistent with the September forecast. The median forecast for the federal funds rate at the end of 2025 is 3.9%. The previous forecast in September was 3.4%.
Powell's announcement that the Fed will only cut interest rates twice more in 2025 is undoubtedly hawkish to the market. In addition, the Federal Reserve Committee also raised its inflation forecast for 2025 from 2.1% to 2.5%.
Some analysts believe that this is because Trump's inauguration will bring some policy adjustments, such as increasing tariffs on many countries, expelling millions of undocumented workers, and expanding the fiscal deficit. Powell emphasized at the press conference that the Fed's policy readjustment is a signal that the central bank is ready to adjust its policies according to the needs of the US economy.
Powell also said that geopolitical turmoil remains a risk and there is a lot of uncertainty in the economic forecast for the next three years.
In this regard, Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities, said: "The Fed has sent a signal that they will not be as dovish as in the past. They tend to cut interest rates less next year. I think this is a signal that the market will continue to price in less than two rate cuts, and if the data is strong enough, it may move towards zero rate cuts. If the Fed does not see inflation falling enough, they are reluctant to continue to cut interest rates."
Nick Timiraos, the "Federal Reserve mouthpiece," pointed out that the addition of the phrase "magnitude and timing" to the Fed's policy statement suggests that the pace of interest rate cuts will be slowed down to modify potential adjustments.
John Haar, managing director of Swan Bitcoin, said: The move to finally lower interest rates and hint at fewer rate cuts next year suggests that future interest rates will be relatively hawkish.
Influenced by the Federal Reserve's hawkish remarks, U.S. interest rate futures priced in a Fed rate cut of about 49 basis points in 2025, which is close to the 50 basis points predicted by the Fed's dot plot. Before the interest rate decision was announced, the market priced in a rate cut of 75 basis points.
In addition to the expectation of rate cuts, Powell also made it clear on the question of whether Trump would build up Bitcoin reserves: the Fed has no intention of holding Bitcoin. Powell said at a press conference after the FOMC meeting: "We are not allowed to hold Bitcoin." As for the legal issues of holding Bitcoin, Powell said, "This is something for Congress to consider, but we have no intention of seeking to change the law."
3. What do industry insiders think of the current crypto market situation?
Regarding the short-term Bitcoin price prediction, cryptocurrency analyst Skew said that BTC’s decline cleared “positions in both directions” as longs were stopped out and “shorts took profits.”
Chris Burniske, partner at Placeholder, said in a post on X: “If you’re upset that you didn’t sell before the market correction after the Fed’s FOMC meeting, please understand that you don’t actually have much of an advantage in predicting the market’s reaction. Take this experience as an opportunity to slow down. Don’t over-trade. In the long run, as long as you are patient, you will be fine.”
Andre Dragosch, head of European research at Bitwise, noted: “I think the biggest trouble for the Fed right now is that despite the Fed’s rate cuts, the financial environment remains tight. Since September, long-term bond yields and mortgage rates have been rising, and the dollar has appreciated, which also means a tightening financial environment. The continued appreciation of the dollar also poses a macro risk to Bitcoin, because the appreciation of the dollar is also associated with a contraction in the global money supply, which is often unfavorable to Bitcoin and other crypto assets. In fact, the Fed’s net liquidity continues to decrease. In my opinion, tightening liquidity and a stronger dollar are also the biggest risks facing BTC… On the other hand, BTC’s on-chain factors continue to be very favorable, especially the continued decline in exchange balances, which supports the assumption that the BTC supply gap continues to intensify.”
According to Coinglass data, in the past 24 hours, the total amount of liquidation in the entire network reached 120 million US dollars, of which the amount of long position liquidation was approximately 109 million US dollars and the amount of short position liquidation was approximately 11.0841 million US dollars.
As of press time, the price of BTC fell below $100,000 to $99,422.12, a 24-hour drop of 5.8%.
The price of Ethereum fell below the $3,600 mark to $3,594.01, a 24-hour drop of 7.3%.
Source: CoinTelegraph, CoinDesk, X, Coingecko, Jinshi Data, Golden Finance
