The Federal Reserve has lowered interest rates by 25 basis points as expected by the market. However, the crypto market has undergone drastic changes, with BTC falling sharply from $105,000 after the Fed's decision was announced, hitting a low of $99,000. Ethereum, meanwhile, has dropped from around $4,000 to about $3,500.
The altcoin market is mostly in a downward trend, except for a few coins.
In terms of contract data, $674 million was liquidated across the network in the last 24 hours, with $577 million in long positions liquidated, totaling over 237,000 people liquidated, and the crypto market is filled with cries of despair.
Federal Reserve's hawkish interest rate cut
Crypto assets are increasingly affected by macro factors. Yesterday's article (The Impact of Interest Rate Cuts on Increased Volatility, with Rate Cuts Still a Key Factor Influencing Next Year's Market Trends) and the day before (Bitcoin Continues to Drain, Be Cautious When Bottom Fishing, Don't Rush) clearly told everyone that the recent market is unstable, and to wait for a wave of declines before considering bottom fishing. Sure enough, today is a waterfall washout.
The Federal Reserve announced a reduction of the benchmark policy rate by 25 basis points but hinted that the number of rate cuts in 2025 may be lower than previously expected (fewer than the four cuts predicted in September and lower than the three cuts anticipated before the meeting). Powell described this shift as a 'new phase' of monetary policy and emphasized that after a 100 basis point cut in 2024, rates are now noticeably closer to a neutral stance. Such a 'hawkish' signal caused both the US stock market and the cryptocurrency market to plunge.
Powell stated that the decision to cut rates at this meeting was 'relatively difficult'. The risks faced by the Fed in achieving the dual goals of controlling inflation and promoting employment are roughly balanced, and significant progress has been made in controlling inflation. Although rates have been cut by 100 basis points, they still significantly suppress economic activity, and the Fed is 'on track to continue cutting rates'. However, before further cuts, officials need to see more progress on inflation.
Additionally, Powell stated that the policies of the new US government have not yet been formally introduced, but the Fed has already done a considerable amount of preparatory work. When the specific policies are finally seen, they will be able to conduct a more detailed and thoughtful assessment and formulate appropriate policy responses.
In his opening remarks, Powell stated that the overall performance of the US economy appears strong and has made significant progress towards the goals set by the Fed over the past two years. The labor market has cooled from its previously overheated state but remains robust. The inflation level is closer to the Fed's long-term target of 2%. He stated that even if next year's inflation rate only falls to 2.5%, the Fed may still cut rates next year as indicated by the dot plot, as inflation trends are heading in the right direction.
Just as Powell hinted at a slowdown in the pace of rate cuts, the US stock market fell, with the Dow Jones index potentially declining for the 10th consecutive trading day, which would be the longest single-day streak of losses since October 1974 when it dropped for 11 consecutive trading days. All 11 major sectors of the S&P 500 fell, with real estate leading the decline.
The biggest trouble for the Federal Reserve right now is that, despite the interest 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, indicating a tightening financial environment. The continuous appreciation of the dollar also poses macro risks for Bitcoin, as the dollar's rise is linked 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 has been continuously decreasing. In my opinion, the tightening liquidity and the strengthening dollar are also the biggest risks facing BTC... On the other hand, BTC's on-chain factors remain very favorable, especially the continued decline in exchange balances, supporting the hypothesis that the BTC supply gap continues to widen.
Although the market is in a pessimistic state, there are still catalysts worth looking forward to in January next year. On January 20, Trump will officially take office as president. The changes under favorable policies will encourage institutions to confidently and boldly invest funds into the cryptocurrency market, thereby raising the prices of crypto assets. The crypto market often follows certain mystical market rules, such as usually experiencing considerable increases around the Lunar New Year.
For example, Bitcoin's monthly return surged over 44% during the Lunar New Year in February of this year. January 29 next year is the Lunar New Year. Perhaps the market will see a turning point in January.
Moreover, the FTX restructuring plan will take effect in early January, and compensation funds will be conducted through fiat and stablecoins, bringing billions back into the market.
Although January next year is worth looking forward to, we cannot let our guard down. The market cycle is highly volatile, and investors need to pay attention to risk control.
After the sharp drop, Eastern countries have all woken up. Japan's lack of interest rate hike expectations has led to a tepid market rebound, indicating that Asian funds can no longer reverse the tide. This is a result of being consumed by multiple 'wolf coming' warnings.
Don't be too pessimistic; in January, there will be 'Understand King' Trump taking office. This time, Understand King is really here to be the emperor, and the Senate is all his, making it easier to push things through in Congress. Today, Powell said that the Fed does not have the authority to buy Bitcoin and does not want to seek legislative changes to promote this matter. However, if Trump insists on pushing Congress to legislate, the establishment of a Bitcoin reserve in the US is not impossible. Therefore, the negative news we see today may actually be future positive factors reversed.
Additionally, in January, there will be FTX compensation, with $16 billion in US dollars or fiat currency compensation, which will somewhat flow back into the crypto space. Coupled with the resumption of the Bitcoin ETF, it is evident that the January market is still worth looking forward to. Therefore, this dip is likely to occur at the end of December or early January, and this timing is worth paying attention to for the funds looking to escape the peak.
When everyone panics and doubts whether the bull market is over, it is time to buy. The market is always counterintuitive; avoiding noise and investing based on your own logic is the best strategy.
