Article reprinted from: BitPush
On Wednesday afternoon local time, the Federal Reserve announced that it would cut its benchmark policy rate by 25 basis points, but hinted that the number of rate cuts in 2025 may be lower than previously expected. U.S. stocks and cryptocurrency markets both plunged.
The Fed’s latest quarterly economic projections show that there may be only two rate cuts in 2025 - down from four in the September forecast and less than the three market expectations before the meeting, which means they will be more cautious in balancing inflation and economic growth. Fed members’ forecasts for personal consumption expenditures (PCE) and core PCE inflation next year rose to 2.5% from 2.1% and 2.2% respectively in the September forecast.
Powell described the shift as a “new phase” in monetary policy and stressed that after a 100 basis point rate cut in 2024, rates are now significantly closer to a neutral stance.
As of the close of the day, all three major stock indexes fell, with the Dow Jones Industrial Average initially closing down 2.59%, setting a record for the longest single-day decline in 50 years (the 10th consecutive trading day of decline); the S&P 500 closed down 2.95%, and the Nasdaq closed down 3.56%. The US dollar soared to a two-year high, and the Chicago Board Options Exchange Volatility Index (also known as the VIX Index and the Wall Street Fear Index) soared 58% to 25, reflecting the increased uncertainty among investors and the growing anxiety about future interest rates.
Powell's remarks "slap" Trump in the face?
At a press conference on Wednesday, in response to an Axios reporter's question about Trump's idea of building a strategic Bitcoin reserve after taking office, Powell said: "We (the Federal Reserve) are not allowed to own Bitcoin. The (Federal Reserve Act) stipulates what we can own, and we don't want to change the law. This is something for Congress to consider, but we don't want the Federal Reserve to change the law."
Bitcoin fell to $104,000 after the Fed’s announcement, and then fell back to around $100,256 after Powell’s speech, down nearly 5% in 24 hours. Altcoins fell even more, with XRP, ADA, and LTC falling nearly 10%.
Trump has repeatedly stated that he wants to establish a strategic Bitcoin reserve. He mentioned in an interview with CNBC last week: "We will make great achievements in the field of cryptocurrency because we don't want any other country to embrace cryptocurrency. We want to be a leader."
Bitpush previously reported that Republican Senator Cynthia Lummis of Wyoming is drafting a bill that would instruct the U.S. Treasury to purchase 1 million bitcoins within five years, with funds coming from Federal Reserve bank deposits and gold reserves.
Other U.S. states have also proposed bills to invest in Bitcoin, with Pennsylvania Republican lawmakers introducing a bill in November that would allow the Pennsylvania Department of the Treasury to invest in Bitcoin, digital assets and cryptocurrency-based exchange-traded products.
The idea of building a strategic Bitcoin reserve has also faced some criticism. Former New York Federal Reserve Bank President Bill Dudley said in an opinion piece published by Bloomberg last week that it was a "bad deal" for Americans.
An analysis published this week by Barclays Bank argues that funding a strategic Bitcoin reserve would likely require congressional approval and the issuance of new Treasury bonds. Barclays analysts said that given the possible ways to build such a reserve, “we suspect that this plan would face strong resistance from the Fed.”
What will be the subsequent trend?
The crypto market currently has too high expectations that the United States may establish a strategic reserve of Bitcoin, while ignoring other countries. Research by Grayscale Research shows that sovereign wealth funds in Asia and the Middle East are the more likely next driving force.
Zach Pandl, head of research at Grayscale, said: "The plunge in Bitcoin prices after Fed Chairman Powell's speech suggests that investors may be overestimating the theoretical possibility of Bitcoin strategic reserves. 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."
Andre Dragosch, head of European research at Bitwise, believes: "I think the biggest trouble for the Fed right now is that despite the Fed's rate cuts, the financial environment is still tightening. Since September, long-term bond yields and mortgage rates have been rising, and the US dollar has appreciated, which also means a tightening financial environment. The continued appreciation of the US dollar also poses macro risks to Bitcoin, because the appreciation of the US dollar is also related to the contraction of the global money supply, which is often not conducive to Bitcoin and other crypto assets. In fact, the Fed's net liquidity continues to decrease. In my opinion, tightening liquidity and a stronger US 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."
The decline of Bitcoin has led to drastic changes in the positions of both long and short parties. According to the chart of crypto analyst Skew, long positions stopped losses, short positions took profits, and the price of Bitcoin fell to the range of $100,000 to $98,000 to seek support. Skew emphasized that in order to reverse the downward trend, the price of Bitcoin must regain the range of $100,000 to $101,400 through spot buying and gain a foothold on the daily chart.
In addition, the 4-hour chart shows that BTC bulls need Bitcoin to show strong buying power near $100,000 and successfully close above $101,400 to consolidate the gains. If this level cannot be maintained, it may retest the support level and buying accumulation zone near $98,000.
Analysts at blockchain analysis platform Santiment expressed optimism and wrote on X: “Considering that BTC has temporarily remained above $100,000 and the drop is not as large as normal fluctuations compared to the S&P 500, this can actually be interpreted as a strong signal once it stabilizes in the next 24-48 hours.”
