On December 19, according to 4E monitoring, the Federal Reserve announced a scheduled 25 basis point rate cut on Wednesday, but significantly raised future policy rate expectations and inflation expectations, now anticipating only two rate cuts totaling 50 basis points next year, halved from previous expectations.
After the release of the Fed's dot plot and economic outlook summary, risk aversion sharply increased, with all three major U.S. stock indices declining. The S&P 500 index fell 2.95%, the Dow Jones dropped 2.58%, marking ten consecutive days of decline, the longest losing streak since 1974, and the Nasdaq decreased by 3.56%. Tesla fell over 8%, leading the declines among tech giants. Cryptocurrency-related stocks generally fell, with MSTR down 9.52% and Coinbase down 10.2%.
The Fed's actions have caused a collapse in U.S. stocks, leading to a significant correction in the crypto market. BTC fell below $100,000, with Powell's statement 'The Fed does not allow and has no intention to hold Bitcoin' increasing market selling pressure, resulting in a drop of up to 6.2% for Bitcoin, which was reported at $99,235 before the deadline. Ethereum briefly dipped to $3,542, with a decline of 7.27%, and altcoins generally experienced double-digit declines. In the past 24 hours, the total liquidation amount across the cryptocurrency market reached $842 million, deepening market panic.
In the foreign exchange bulk market, the Fed sharply cuts rate cut expectations, causing the dollar index to rise over 1% to a two-year high; gold prices fell more than 1% to a one-month low; U.S. crude oil inventories decreased, pushing up oil prices, but the slowing pace of rate cuts dampens demand prospects, leading to oil prices rising and then retracing, gradually erasing gains.
After the Federal Reserve announced a 25 basis point rate cut to 4.25%-4.5% as expected at this meeting, the 'dot plot' of interest rates released by the Fed showed that it is anticipated to cut rates only two more times by 2025, which is a halving of the planned rate cuts compared to the September dot plot forecast, exceeding expectations in hawkishness, and the market reacted with extreme fear. Fed officials also expect two more rate cuts in 2026 and one more in 2027.
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The Fed has no intention; the national reserve of Bitcoin faces numerous difficulties.
Taking the Bitcoin bill proposed by Senator Cynthia Lummis as an example, this bill requires the government to purchase up to 200,000 bitcoins annually over five years, totaling 1 million. Based on a price of $100,000 per bitcoin, excluding the premium on purchases, the government would need to raise at least $100 billion. In terms of operational details, the funding could come from three sources: first, using the Federal Reserve's Treasury remittances, with a maximum of $6 billion per year; this option is unlikely due to the Fed's current loss status, with losses exceeding $200 billion. In fact, since September 2023, the Fed has not remitted any funds to the Treasury. Second, funds could be transferred from the Fed's capital surplus account to the Treasury's general fund; this method was previously used in the FAST (Fixing America's Surface Transportation) Act, but using it to buy Bitcoin would likely raise public questions about the Fed's independence.
Compared to the previous two options, the third option is more feasible, which is to adjust the fair value of gold based on market prices, allowing the Fed to market the returns of the Treasury's gold reserves' official value. According to the Fed's financial report, the Fed's official reserve assets include gold, special drawing rights, and coins, where gold refers to the Treasury's gold dollar-denominated certificates. Based on an official price slightly above $42.22 per gold ounce, the nominal value is $11 billion; if calculated at the market price of $2,700, this reserve would reach $703.4 billion. In fact, regardless of how Bitcoin is purchased, the U.S. Treasury needs strong support from the Fed.
On the other hand, national reserve assets in the U.S. need to have high liquidity, which helps maintain the dollar's status as an international reserve currency and serve as a final means of payment. From this perspective, the highly volatile Bitcoin does not seem to meet the standards. If the U.S. government significantly purchases Bitcoin, although it would further drive up its price, it would lead to a high concentration of Bitcoin on the government side. When large amounts need to be sold, the impacts of slippage and volatility will be substantial, potentially resulting in the government bearing significant impairment losses. Moreover, the rise of non-sovereign currencies will, to some extent, undermine global confidence in the dollar.
Due to a combination of various factors, the Fed's dislike of cryptocurrency is deeply ingrained, and Powell has repeatedly expressed opposition to cryptocurrencies. It is worth noting that in this statement, Powell also left room for consideration: 'This is something Congress should consider,' implying that Congress could amend the bill to include Bitcoin in reserves. However, given the complex entanglements of interests and the extensive repercussions, the likelihood of functional amendments is extremely low.
This is why the credibility of purchasing through the foreign exchange stabilization fund is relatively higher. Unlike the Fed's approach, this fund is part of the U.S. Treasury. With the President's approval, the Treasury can bypass Congress for appropriations and directly use the ESF to trade gold, foreign exchange, and other credit and security instruments, offering relatively flexible usage.
Overall, although Trump has gained control of both houses during this term and power is highly centralized, and he has actively expressed related plans, from a probabilistic perspective, the likelihood of Bitcoin becoming a strategic reserve asset for the U.S. remains very low. However, for Trump, who does not follow conventional paths, anything is possible. After all, from a practical standpoint, the U.S. government already holds over 210,000 bitcoins, ranking first among global governments. If a partial reserve is realized, the appreciation of Bitcoin could have a very positive effect on the heavily indebted U.S.
VanEck's more optimistic outlook predicts that Bitcoin reserves will become a reality, with the federal government or at least one state (such as Pennsylvania, Florida, or Texas) establishing Bitcoin reserves. It is also expected that the number of countries using government resources for mining will increase from the current seven to double digits. On the other hand, VanEck has also made predictions in niche areas, believing that stablecoins, DeFi, NFTs, Bitcoin Layer-2, RWA, and AI agents will experience rapid growth. By 2025, DEX trading volume is expected to exceed $4 trillion, accounting for 20% of CEX spot trading volume; NFT trading volume will reach $30 billion; Bitcoin Layer-2's total value locked (TVL) will reach 100,000 BTC; the total value of tokenized securities will exceed $50 billion; and the on-chain activities of AI agents will exceed one million. However, from the current clear path divergence, what seems to be a promising bull market still carries risks, especially for altcoins, which are most affected by liquidity. In fact, even now, many altcoin holders find that prices have not yet returned to previous bear market levels.
