Original title: (After the Federal Reserve's hawkish rate cut, the cryptocurrency market as a whole faces a correction)
Original authors: Alvis, MarsBit
At last night's Federal Reserve meeting, the benchmark policy interest rate was lowered by 25 basis points to a range of 4.25% - 4.5%. Although this outcome met market expectations, the hawkish wording in the statement and the adjustments to economic forecasts had a profound impact on market sentiment, leading to a significant correction in the cryptocurrency market. Prices of mainstream and altcoins such as Bitcoin, Ethereum, Dogecoin, and Solana all declined significantly.
The Federal Reserve sends hawkish signals, causing market turbulence.
Federal Reserve Chairman Jerome Powell clearly stated at the press conference that although this rate cut met market expectations, the frequency and magnitude of future rate cuts may be far lower than previous market assumptions. Powell emphasized that the Federal Reserve only plans to cut rates twice in 2025 and also raised the inflation forecast for 2025 from 2.1% to 2.5%. This adjustment reflects the Federal Reserve's deep concern about future inflation pressures.
Powell specifically mentioned the uncertainty of future economic policies, including protectionist measures that the incoming Trump administration might implement, such as tariffs on imported goods, mass deportations of undocumented workers, and a potentially enlarged fiscal deficit, as important reasons for the Federal Reserve's more cautious stance. These potential policy changes may further exacerbate inflation pressures and have a widespread impact on the market.
Bitcoin leads the decline, and the cryptocurrency market faces overall pressure.
The price of Bitcoin rapidly dropped by 5.6% to $100,000 after the Federal Reserve announced a rate cut, but has since rebounded.
Ethereum's decline is more pronounced, dropping 6.96% to $3,600. Altcoins like Dogecoin and Solana also did not escape, with Solana's decline exceeding 7% and Dogecoin suffering losses of over 8% due to high volatility. The broader altcoin market performed particularly poorly, with some second- and third-tier assets dropping more than 10%.
According to Coinglass data, in the last 24 hours, a total of 236,199 people were liquidated globally, with a total liquidation amount of $672 million. The largest single liquidation occurred in Binance - ETHUSD_PERP, worth $4.0677 million.
Cryptocurrency analyst Skew pointed out that Bitcoin's rapid decline cleared long and short positions in the market, indicating that the market has entered a deep adjustment period. The price of Bitcoin fell to a critical bidding range between $100,000 and $98,000, and analysts believe that if it cannot reclaim the support level between $100,000 and $101,400 before the daily close, the market may continue to search for new lows.
Economic forecasts highlight inflation risks, and the dot plot shows policy determination.
The economic forecasts presented in this meeting clearly reflect the Federal Reserve's policy considerations. The Federal Reserve raised its economic growth expectations for 2024 and 2025 while lowering unemployment rate expectations and significantly increasing inflation forecasts. Notably, the upward adjustment of the inflation forecast for 2025 is substantial, indicating the Federal Reserve's high regard for long-term inflation risks.
The dot plot shows that the Federal Reserve may only cut rates twice in 2024. This cautious policy stance not only demonstrates its firm determination to control inflation but also prompts the market to reassess the future liquidity environment. The US dollar and the volatility index (VIX) surged significantly due to this signal, while US Treasury yields, US stocks, gold, and the cryptocurrency market generally faced pressure.
Short-term outlook: The crypto market faces continued adjustments.
In this macro context, the cryptocurrency market may continue to face pressure in the short term. Whether mainstream assets like Bitcoin and Ethereum can hold key support levels will have a significant impact on market confidence. Meanwhile, the performance of altcoins like Solana and Dogecoin may be more volatile, as these assets typically exhibit higher sensitivity during market fluctuations.
Powell repeatedly mentioned the uncertainty of the economic outlook during the press conference and reiterated that future policy adjustments will be data-driven. In the context of a complex global macro environment, investors need to cautiously assess the allocation strategies for crypto assets and closely monitor upcoming economic data to gauge the medium- to long-term trends of the market.
Despite the current market sentiment being low, analysts generally believe that this round of adjustments also provides strategic layout opportunities for patient long-term investors. The price corrections of mainstream crypto assets may lay a foundation for future increases, while some undervalued altcoins may see greater rebound potential when the market warms up.
Attached is the original statement by Powell:
Recent indicators suggest that economic activity continues to expand at a steady pace. Since the beginning of this year, labor market conditions have generally eased, with an increase in unemployment rates, but still remain at a low level. The inflation rate has moved towards the committee's 2% target, but is still slightly elevated.
The committee aims to achieve full employment and a 2% inflation target over a longer period. The committee judges that the risks to achieving employment and inflation targets are roughly balanced. The economic outlook is uncertain, and the committee is concerned about the bidirectional risks of its dual mandate.
To support its objectives, the committee decided to lower the target range for the federal funds rate by 25 basis points to 4.25% to 4.5%. In considering further adjustments to the federal funds rate target range, the committee will carefully assess newly received data, the evolving outlook, and risk balance. The committee will continue to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities. The committee is firmly committed to supporting maximum employment and bringing the inflation rate back to the 2% target.
In assessing the appropriate stance of monetary policy, the committee will continue to monitor the impact of the information received on the economic outlook. If risks that may hinder the achievement of the committee's goals arise, the committee will be prepared to adjust the stance of monetary policy as necessary. The committee's assessment will consider a wide range of information, including interpretations of labor market conditions, inflation pressures, inflation expectations, and financial and international developments.
Those voting in favor of the monetary policy action included: Chairman Jerome Powell, Vice Chairman John Williams, Thomas Barkin, Michael Barr, Raphael Bostic, Michelle Bowman, Lisa Cook, Mary Daly, Philip Jefferson, Adriana Kugler, and Christopher Waller. Beth M. Hammack voted against, preferring to maintain the federal funds rate target range at 4.5% to 4.75%.
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