Written by: Gyro Finance
The long-awaited interest rate cut came as expected, but the market was not as excited as usual.
In the early morning of December 19th, Beijing time, the Federal Reserve announced its last interest rate decision of the year, deciding to lower the target range of the federal funds rate by 25 basis points to 4.25%-4.50%, successfully achieving the third consecutive interest rate cut. So far, the Federal Reserve has reduced the cumulative rate by 100 basis points in this round of interest rate cuts.
Even if there is actual selling, the release of liquidity is a great thing for the risk market, but this time, it is different. The U.S. stock market fell first and priced it with action. Choice data shows that as of the close of the 18th Eastern Time, the Nasdaq fell 3.56% and the S&P 500 fell 2.95%. The Dow fell 1,000 points, a drop of 2.58%, and fell for the 10th consecutive day, the longest consecutive decline since October 1974.
The crypto market followed closely, with Bitcoin falling below $100,000 and touching $99,000. ETH fell by more than 7.2% at its highest point, and the altcoin sector fell by more than 10%. Why did this rate cut lead to such a result?
01 Hawkish expectations trigger market panic, Powell slaps Trump in the face
Rate cuts are a good thing, but the speculation in the risk market revolves around two words: expectations. Fed Chairman Powell made a long-lost hawkish statement while cutting interest rates, saying that the decision to cut interest rates in December was more challenging, but it was the "right decision", emphasizing that the Fed should be "more cautious" when considering adjusting policy interest rates in the future. Whether the Fed will cut interest rates in 2025 will be based on future data rather than current forecasts. The Fed will consider further rate cuts after inflation improves.
Compared with previous relatively consistent votes, this rate cut also saw disagreements. Cleveland Fed President Hammack voted against the interest rate decision, believing that this rate cut should be skipped, reflecting that the resistance to rate cuts is continuing to increase.
In the economic outlook released by the Federal Reserve on the same day, the economic growth rate was raised and the unemployment rate was lowered, which also showed the hawkish stance of the Federal Reserve. Judging from the dot plot, based on the outlook forecast, 10 of the 19 Federal Open Market Committee members believe that the target range of the federal funds rate will drop to between 3.75% and 4% by the end of 2025. Considering the so-called "more cautious", based on 25 basis points, the Federal Reserve seems to be able to cut interest rates at most twice next year, which is a large retracement compared to the four expectations in September.
In this context, the sharp drop in the US stock market, which has already digested the news of the December rate cut, is understandable. After all, whether there will be a soft landing in the future market remains to be considered. In fact, from a macro perspective, the severity is still within controllable range. Despite the initial hawkish remarks, there is still a consensus on the rate cut in 2025, but the neutral interest rate has risen. From the perspective of the Federal Reserve, the hawkish remarks are most likely an early warning to deal with the uncertainty of Trump's subsequent administration, thereby reserving a certain space to prevent the inflation caused by Trump's policy proposals.
Although expectations of interest rate cuts have a significant impact on risk markets, the disaster of cryptocurrency is even worse. Powell's words caused Bitcoin to fall by more than 5% and further crashed the crypto market. According to Coinglass data, as of 5 p.m., more than 260,000 people around the world have been liquidated in the past 24 hours, with $780 million in liquidated positions across the entire network, $661 million in long positions, and $118 million in short positions.
At the press conference, when Powell was asked whether the Fed would establish a national reserve of Bitcoin, he responded, "We are not allowed to own Bitcoin. The (Federal Reserve Act) stipulates what the Federal Reserve can own, and the Federal Reserve does not seek to change it. This is a question that Congress should consider, but the Federal Reserve does not want to amend the law."
Powell's attitude undoubtedly reflects his opposition to cryptocurrencies. The Fed does not consider including Bitcoin in its balance sheet and does not want to discuss the issue. During his current term, Powell has made it clear that he will not resign and Trump has no power to replace him.
Coincidentally, not long ago, Trump made his usual "great speech", saying that he would do something great in the field of cryptocurrency. When answering the question of whether the United States would establish a strategic reserve of Bitcoin similar to oil reserves, he bluntly said: "Yes, I think so." Earlier, an anonymous transition team source also revealed that Trump hopes to make Bitcoin break through $150,000 during his term because cryptocurrency is "another stock market" for him. Considering Trump's clear ruling theory of "the stock market is everything", the news has a high degree of credibility.
On December 17, market news came again that Trump planned to establish a strategic Bitcoin Reserve (SBR) through an executive order, and planned to use the Treasury's Exchange Stabilization Fund (ESF) to purchase Bitcoin, which now exceeds $200 billion. On the same day, the Bitcoin Policy Institute drafted the full text of the executive order and stated that the order would take effect after Trump signed it after taking office.
Stimulated by a series of news, the Bitcoin national reserve plan seems to be just around the corner, and the market has high hopes for it. The vote on Bitcoin reserves on Polymarket has continued to grow from 25% to 40%. Yesterday, Bitcoin rose all the way and once hit a new mark of $110,000. But Powell's speech at this time is undoubtedly a direct slap in the face of Trump. If the Federal Reserve does not cooperate, the so-called national reserve will obviously encounter strong obstacles.
02 The Federal Reserve has no intention, and Bitcoin national reserves are full of difficulties
Take the Bitcoin Act, first proposed by Senator Cynthia Loomis, as an example. This bill requires the government to purchase up to 200,000 bitcoins per year within 5 years, with a total of 1 million. Calculated at $100,000 per bitcoin, excluding the premium in the purchase, the government needs to raise at least $100 billion. From the detailed operation, the source of funds can be composed of three parts. The first is to use the Federal Reserve's treasury remittances, up to $6 billion per year. This option is less likely because the Federal Reserve's account is still in a loss state, with a loss of more than $200 billion. In fact, the Federal Reserve has not remitted any funds to the Treasury since September 2023. The second is to transfer from the Federal Reserve's capital surplus account to the Treasury's general fund. This method has been used in the FAST (Repairing America's Surface Transportation) Act, but if it is used to buy Bitcoin, it is very likely to cause public doubts about the independence of the Federal Reserve.
Compared with the first two, the third option is more feasible, that is, to adjust the fair value of gold according to the market price, so that the Federal Reserve can marketize the benefits of the official value of the Treasury's gold reserves. According to the financial report released by the Federal Reserve, the Federal Reserve's official reserve assets are gold, special drawing rights and coins. Among them, gold refers to the Treasury's gold dollar-denominated certificates. Calculated at an official price of slightly more than $42.22 per troy ounce, the nominal price is $11 billion. If calculated at a market price of $2,700, the reserve will reach $703.4 billion. In fact, looking at the three methods, no matter how to buy Bitcoin, the U.S. Treasury needs the full support of the Federal Reserve.
On the other hand, the US national reserve assets need to be highly liquid, which helps maintain the international reserve currency status of the US dollar and serves as a means of payment of last resort. From this perspective, the highly volatile Bitcoin does not seem to meet the standard. If the US government purchases a large amount of Bitcoin, although it will further push up its price, it will highly concentrate Bitcoin on the government side. When selling in large amounts, the impact of slippage and volatility will be more than a little bit, and the government may even bear the huge impairment loss in the end, not to mention that the rise of non-sovereign currencies will more or less weaken the global recognition of the US dollar.
Due to a combination of reasons, the Fed's dislike for cryptocurrencies is deeply rooted, and Powell has repeatedly expressed his opposition to cryptocurrencies. It is worth noting that in this statement, Powell also left room, "This is something Congress should consider", that is, Congress can amend the bill to include Bitcoin in the reserves, but considering the complex conflicts of interest and the wide range of implications, the possibility of functional modifications is minimal.
This is also why the purchase of the Exchange Stabilization Fund is relatively more credible. Unlike the Federal Reserve's path, the fund is affiliated with the U.S. Treasury Department. After obtaining the president's consent, the Treasury Department can bypass Congressional appropriations and directly use the ESF to trade gold, foreign exchange and other credit and securities instruments, and its use is relatively flexible.
Overall, although Trump has won both houses of Congress during this term, power is already highly concentrated, and he has also actively announced relevant plans, but from a probability perspective, the possibility of Bitcoin becoming a strategic reserve asset in the United States is still very low. However, for Trump, who does not follow the usual path, everything is possible. After all, from a realistic perspective, the US government already holds more than 210,000 Bitcoins, ranking first among governments around the world. If partial replacement of reserves is achieved, the appreciation of Bitcoin can still play a very positive role in the debt-ridden United States.
03 Institutional FOMO is rising, and the crypto market cannot escape the path of differentiation
In the long run, despite the brief Black Thursday, the outlook for the crypto market remains bright with foreseeable regulatory benefits. Institutions have also expressed high optimism about the coming 2025.
Bitwise gave clear price data in its 2025 forecast, indicating that the number of countries holding Bitcoin will double, Bitcoin ETFs will also see more inflows, Bitcoin will reach $200,000, and if strategic reserves are achieved, there will be no upper limit, and it will reach a price of one million dollars in 2029. Ethereum will undergo a narrative shift in 2025, driven by Layer 2, stablecoins, and tokenized projects, reaching $7,000, and Solana will directly reach $750. In addition, it also stated that 2025 will be the first year for IPOs of crypto companies, and Coinbase will become the largest trading broker.
VanEck's expected phases are clearer, saying that the cryptocurrency bull market will continue to develop in 2025 and reach its first peak in the first quarter. At the peak of this cycle, Bitcoin is expected to be priced at about $180,000, while Ethereum will be priced at more than $6,000. Other well-known projects, such as Solana and Sui, may break through $500 and $10, respectively. After the first quarter, BTC prices are expected to pull back by 30%, while altcoins will fall even more, by 60%. The market will consolidate in the summer and then rebound in the fall, with major tokens regaining growth and recovering their previous historical highs by the end of the year.
Compared with Bitwise, VanEck is more optimistic and believes that Bitcoin reserves will become a reality. The federal government or at least one state (such as Pennsylvania, Florida or Texas) will establish Bitcoin reserves. It is also expected that the number of countries using government resources for mining will increase from the current 7 to double digits. On the other hand, VanEck also made predictions for the sub-sectors, believing that stablecoins, DeFi, NFT, Bitcoin Layer-2, RWA, and AI agents will all usher in rapid development. By 2025, DEX trading volume will exceed 4 trillion US dollars, accounting for 20% of CEX spot trading volume; NFT trading volume will reach 30 billion US dollars; Bitcoin Layer-2 lock-up volume (TVL) will reach 100,000 BTC; the total value of securities tokenization will exceed 50 billion US dollars; and the on-chain activities of AI agents will also exceed 1 million.
Presto’s predictions are also consistent, indicating that the price of Bitcoin will reach $210,000, the ETH/BTC ratio will rebound to 0.05, Solana will break through $1,000, and a sovereign nation or S&P 500 company will include Bitcoin in its treasury reserves.
From last year's forecast, VanEck's prediction success rate is about 56.6%, and Bitwise's is about 50%, so from the perspective of institutions, the credibility is quite good. In general, institutions predict that Bitcoin will peak at around 200,000 in the next year, while Ethereum will be around 6,000-7,000 US dollars. Institutions are very bullish.
However, judging from the obvious path divergence at present, the bull market seems to be full of risks, especially for altcoins, which are most susceptible to liquidity. In fact, even today, many altcoin holders will find that the price of the currency has not even returned to the previous bear market level.
The lack of market liquidity can also be seen from Binance's new coins. The listing effect of "Universe Exchange" is continuously weakening, and the highs and falls have become the main theme. According to Gyro Finance statistics, as of December 19, the average decline of the 10 new tokens listed on Binance since November exceeded 57.94%. For example, PENGU, which was just listed on December 17, soared to 0.07 after listing and quickly retreated to 0.033, a decline of 51.81%.
It is precisely because of the market difficulties and numerous doubts that Binance Wallet recently launched the Binance Alpha function, hoping to activate trading volume and stimulate the wallet ecosystem by opening up low-market-cap potential tokens, so as to maintain its leading advantage in the fierce market competition. However, from the current perspective, the short-term platform activity is prominent, and the long-term effect remains to be discussed.
In this sense, holding mainstream tokens may be the best choice in this bull market. Currently, the crypto market has rebounded, with Bitcoin at $101,652 and ETH at $3,674.
