The Federal Open Market Committee (FOMC) meeting was the main event that caused fluctuations in the cryptocurrency market over the past week. Chairman Powell emphasized that based on the law, the Fed cannot purchase Bitcoin as a strategic reserve asset. Additionally, the Fed's dot plot revealed that rate cuts in 2025 will decrease from four times to two times, prompting the market to re-evaluate the correction wave of risk asset prices.
Bitcoin fell from a high of $107,000 to a low of $94,000, while other major currencies such as ETH, DOGE, ADA, AVAX, etc., saw even more severe declines. Most coins experienced double-digit declines in a single day, with ETH also falling below the $3,500 support level, and XRP dropping below $2.2. Other DeFi tokens like LINK and DOT also fell sharply. The strong correction led to over 330,000 highly leveraged traders being forcibly liquidated within 24 hours, with a total liquidation amount exceeding $1 billion.
However, the main force behind this sell-off is not the cryptocurrency market itself but rather the flow of funds from Bitcoin spot ETFs transitioning from buying to selling. According to Farside data, on December 19, Bitcoin ETFs experienced record daily outflows, with a net outflow of $672 million. Among them, Fidelity's FBTC and Grayscale's GBTC withdrew $208.5 million and $188.6 million, respectively, being the largest sources of fund outflows.
Ethereum ETFs also did not escape unscathed, experiencing a net outflow of $60 million on the day. Although this amount is far lower than that of Bitcoin spot ETFs, Ethereum's price still fell by more than 9%, hovering around $3,400. The overall market shows a rising risk-averse sentiment among investors, with significant withdrawals from risk assets, temporarily interrupting Bitcoin's continuous upward momentum since Trump's election. Investors are also re-evaluating whether Bitcoin's price justifies the high price of $100,000.
The market is currently re-evaluating cryptocurrencies and other U.S. stock risk assets based on different interest rate benchmarks, leading to significant price corrections. However, we expect this correction will not last long, as the Fed's delay in rate cuts is merely a false issue and is not the main factor affecting the upward trend of Bitcoin and cryptocurrencies. This downward adjustment instead helps to cool off previous overly optimistic sentiments. If the price remains around $100,000, it indicates that Bitcoin's price resilience has formed, and investors do not need to worry too much.
Next, we will discuss the revised interest rate expectations and whether changes in interest rates in the medium to long term will aid the subsequent rise of cryptocurrencies.
Sources: MICA RESEARCH A. December 16, Consensys Report: Emerging Markets Drive Cryptocurrency Growth
According to the second global cryptocurrency and Web3 survey report released by Consensys, emerging markets are leading the global adoption of cryptocurrencies. Countries such as Nigeria, South Africa, and the Philippines have shown significant growth in terms of awareness, ownership, and participation in cryptocurrency-related activities.
Additionally, according to its survey, 93% of people globally have some understanding of cryptocurrencies, with 51% indicating comprehension and 42% owning cryptocurrency assets. Nigeria has the highest ownership rate (73%), followed by South Africa (68%) and the Philippines (54%). These regions also show active participation in Web3 activities such as NFTs, decentralized finance (DeFi), and cryptocurrency staking.
The local population embraces cryptocurrencies primarily due to economic difficulties. For example, 65% of respondents in Nigeria view it as a store of value against currency devaluation, while 58% believe that cryptocurrency is the currency of the future. Despite higher acceptance of cryptocurrencies in emerging markets, barriers such as market volatility, fraud, and lack of awareness still exist globally. Nevertheless, users in these regions are still willing to overcome challenges to combat local economic issues.
B. On December 18, the CEO of Crypto.com met with Trump, and the CRO token surged by 17%.
As the Trump administration is about to take office, in order to fulfill the previous campaign promise of being friendly to cryptocurrencies, the market continues to hear reports of Trump meeting with many top executives in the cryptocurrency industry to discuss the regulatory policies of his new government. However, these remain in the speculation stage without any reliable news. The CEO of Crypto.com posted a photo with Trump on social media yesterday, causing the price of the CRO token to immediately soar by several dozen percentage points, reaching a ten-day high.
He expressed in an interview that he was honored to have the opportunity to meet with President Trump and looked forward to working with the new government to establish and advance clear regulations for the cryptocurrency industry, making the United States a global leader in crypto assets and innovation. Previously, other industry leaders also hinted at collaborating with the Trump administration to establish more friendly and clear regulatory policies. Analysts are speculating which cryptocurrency executives Trump met with, as these companies' tokens may rise.
Previous cases include the founder of Cardano stating that he would focus on assisting in the formulation of legislative frameworks in 2025, which promoted the rise of the ADA token price. Additionally, there are reports that Ripple's CEO also met with Trump, but the only official meeting with concrete evidence is the photo of the CEO of Crypto.com with Trump. The market is looking forward to the new Trump administration opening doors for more cryptocurrency products.
C. On December 19, the Fed cut rates by 25 basis points and adjusted its rate cut expectations for next year to only 50 basis points.
The U.S. Federal Reserve (Fed) announced a reduction of the benchmark interest rate by 0.25% to a range of 4.25%-4.5%. This is the third consecutive rate cut in 2024. Although inflation has not fully subsided, it remains at an annual growth rate of 2.7%. Chairman Powell stated that this rate cut aims to achieve a balance between "price stability and full employment." He also added that the possibility of raising rates again in 2025 is very low, but further rate cuts will depend on the progress of declining inflation.
The policy statement added wording regarding the extent and timing, suggesting that the Fed may slow down its rate-cutting pace. Inflation remains a challenge, and they expect the core personal consumption expenditures (PCE) inflation rate to drop to 2.5% in 2025, up from the September forecast of 2.2%. Economic growth is expected to stabilize at 2.1%, while the unemployment rate may slightly decrease to 4.2%.
Under this premise, the Fed's dot plot shows that policymakers generally expect only two rate cuts in 2025, fewer than the four predicted in September, directly indicating that the Fed's rate-cutting pace will be relatively slow next year. This also led to a sell-off of risk assets. Bitcoin dropped 5% after the announcement, impacting the price performance of other competing coins, with declines ranging between 5% to 10%. The market's capital attitude is expected to re-evaluate the outlook.
DeFi price corrections are excessive; attention can be paid to the subsequent trends of related tokens.
First of all, we believe that the Fed's reduction in the expected rate cuts for 2025 will not affect Bitcoin's price trend in the medium to long term. Although the pace of rate cuts may slow down, the trend is still heading towards continued rate cuts. As long as there is any unexpected deterioration in the U.S. economy, the Fed will undoubtedly accelerate rate cuts, and investors need not worry about any possibility of rate hikes. In this scenario, betting on a continued rate cut direction is a relatively safe approach.
In fact, the market's reaction to the Fed's statement on delaying rate cuts was excessive. This statement at most adjusted the expected rate cut in 2025 from the original 1% down to 0.5%. A benchmark rate of only 0.5% is not a significant difference for a market currently awash with funds. We tend to believe that this drop is more like a reason for the main players to take profits and does not affect the overall structure of the bull market. Considering the possibility of an economic recession in the U.S., accelerated rate cuts remain highly likely.
This drop helps cool down the previously overly optimistic bullish sentiment. Bitcoin has seen too much madness in the past, rising from $60,000 to $100,000 in just two months. A decline to $95,000 after the Fed's hawkish declaration is a healthier situation. Although many highly leveraged investors were forced to liquidate, it does not affect the positions of long-term investors, and the magnitude of the decline is also not significant, with a weekly drop of only 5%. The market situation remains healthy.
Under the premise that the macroeconomic environment remains unchanged, DeFi tokens have been the hardest-hit sector in this wave, with weekly declines mostly reaching between 10% to 20%. Considering that the Trump administration is about to relax regulations on cryptocurrency tokens, there may be a series of favorable DeFi policies released next year. Additionally, it is rumored that Trump has recently been meeting with top executives from crypto exchanges to discuss how to formulate future cryptocurrency-related policies in the U.S. It is anticipated that the U.S. government will open up more innovations related to DeFi to cryptocurrency exchanges.
Additionally, the U.S. government is expected to allow traditional banks to open their financial services to blockchain or cryptocurrency-related companies. In the future, more cryptocurrency-related companies will obtain banking services such as account custody, transfers, or withdrawals. A more comprehensive regulatory environment and services are expected to emerge. Under these unchanged premises, we believe that DeFi tokens still have their upward potential. The previous wave of Trump-positive sentiments has not ended; it has just been temporarily affected by the Fed's slow rate cuts, and there will still be opportunities to reignite the upward momentum.
Last week's review: [MICA RESEARCH] Bitcoin stabilizes at $100,000, with funds flowing into the DeFi ecosystem.
Statement: The article only represents the author's personal views and opinions, not those of Blockcast. All content and views are for reference only and do not constitute investment advice. Investors should make their own decisions and trades, and the author and Blockcast will not bear any responsibility for any direct or indirect losses arising from investors' trades.
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"[MICA RESEARCH] The Fed's hawkish stance causes the market to adjust, but the trend of rate cuts remains unchanged." This article was first published on (Blockcast).
