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 both the U.S. stock and cryptocurrency markets to plunge.
The Federal Reserve's latest quarterly economic forecast indicates that there may only be two rate cuts in 2025 — fewer than the four predicted in September and below the three expected by the market before the meeting. This suggests they will be more cautious in balancing inflation and economic growth. The Fed members' forecasts for personal consumption expenditures (PCE) and core PCE inflation for next year have risen from the September predictions of 2.1% and 2.2% to 2.5%.
Powell described this shift as a 'new phase' of monetary policy, emphasizing that interest rates are now significantly closer to neutral after a 100 basis point rate cut in 2024.
As of the market close on that day, all three major indices fell, with the Dow initially down 2.59%, marking the longest single-day consecutive decline in 50 years (the 10th consecutive trading day of decline); the S&P 500 index closed down 2.95%, and the Nasdaq fell 3.56%. The dollar surged to a two-year high, and the Chicago Board Options Exchange Volatility Index (also known as the VIX index or Wall Street Fear Index) surged 58% to 25, reflecting increased investor uncertainty and heightened anxiety over future interest rates.
Did Powell's remarks 'slap' Trump in the face?
At a press conference on Wednesday, when answering 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 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 Federal Reserve to change the law.'
Bitcoin fell to $104,000 after the Federal Reserve's announcement, and then, following Powell's speech, it hit a low of around $100,256, dropping nearly 5% within 24 hours. Altcoins experienced larger declines, with XRP, ADA, and LTC falling nearly 10%.
Trump has repeatedly stated the need to establish a strategic Bitcoin reserve. In an interview with CNBC last week, he mentioned: 'We will make great achievements in the cryptocurrency space 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 would 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 legislator 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 article last week that this would be a 'bad deal' for Americans.
An analysis report released this week by Barclays Bank suggests that funding for a strategic Bitcoin reserve may require Congressional approval and the issuance of new government bonds. Barclays analysts stated that given the potential ways to establish such a reserve, 'we suspect that the plan will face strong resistance from the Federal Reserve.'
What will the subsequent trend be?
The crypto market currently has overly high expectations regarding the U.S. potentially establishing a strategic Bitcoin reserve, while ignoring other countries. Research from Grayscale 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 said: 'After Fed Chairman Powell's speech, the price of Bitcoin plummeted, indicating that investors may have overvalued the theoretical possibility of Bitcoin as a strategic reserve. Grayscale Research expects more nation-states to adopt Bitcoin, but the next likely step is sovereign wealth funds in Asia or the Middle East, which already manage highly diversified asset pools.'
Andre Dragosch, Head of Research at Bitwise Europe, believes: 'I think the biggest problem for the Federal Reserve right now is that, despite rate cuts, the financial environment is still tightening. Since September, long-term bond yields and mortgage rates have been rising, and the dollar has appreciated, which also means the financial environment is tightening. The continued appreciation of the dollar poses macro risks for Bitcoin, as it is related to the contraction of global money supply, which is often detrimental to Bitcoin and other crypto assets. In fact, the Federal Reserve's net liquidity has been continuously decreasing. In my view, the tightening of liquidity and the strengthening of the dollar are also the biggest risks facing 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 that the supply gap for BTC continues to widen.'
The decline in Bitcoin led to a sharp change in positions between longs and shorts. According to charts from crypto analyst Skew, long positions faced stop-losses and shorts took profits, with the price of Bitcoin seeking support in the range of $100,000 to $98,000. Skew emphasized that to reverse the downward trend, Bitcoin must reclaim the range of $100,000 to $101,400 through spot buying and maintain 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 consolidate the uptrend. If this level cannot be held, it may retest the support level and accumulation zone near $98,000.
Analysts from blockchain analytics platform Santiment expressed optimism and posted on X: 'Given that BTC is temporarily holding above $100,000, and that its decline compared to the S&P 500 is not as large as normal fluctuations, if it stabilizes within the next 24-48 hours, this can actually be interpreted as a strong signal.'
