Written by: BitpushNews
On Wednesday afternoon local time, the Fed announced a 25 basis point cut to the benchmark policy rate but hinted that the number of rate cuts in 2025 may be lower than previously expected, causing both the stock and cryptocurrency markets to plunge.
The Federal Reserve's latest quarterly economic forecast shows that there may only be two rate cuts in 2025—lower than the four predicted in September and also lower than the three expected by the market before the meeting, indicating a more cautious balance between inflation and economic growth. Fed members' forecasts for next year's personal consumption expenditures (PCE) and core PCE inflation have risen from September's predictions of 2.1% and 2.2% to 2.5%.
Powell describes this shift as a 'new phase' of monetary policy and emphasizes that after a 100 basis point rate cut in 2024, rates are now significantly closer to neutral.
As of the close of the day, all three major stock indexes fell, with the Dow initially down 2.59%, marking the longest single-day decline in 50 years (falling for the 10th consecutive trading day); the S&P 500 index fell 2.95%, and the Nasdaq fell 3.56%. The dollar surged to a two-year high, and the Chicago Board Options Exchange Volatility Index (also known as the VIX index and Wall Street Fear Index) soared 58% to 25, reflecting increased uncertainty among investors and heightened anxiety about future interest rates.
Powell's remarks 'slap' Trump?
At a press conference on Wednesday, in response to an Axios reporter's question about the idea of establishing a strategic Bitcoin reserve after Trump took office, Powell stated: 'We (the Fed) are not allowed to own Bitcoin; the Federal Reserve Act specifies what we can own, and we do not wish to change the law. This is something for Congress to consider, but we do not want the Fed to change the law.'
Bitcoin dropped to $104,000 after the Fed's announcement, and then fell to around $100,256 after Powell's speech, dropping nearly 5% within 24 hours. Altcoins experienced even larger declines, with XRP, ADA, and LTC dropping nearly 10%.
Trump has repeatedly stated the desire to establish a strategic Bitcoin reserve. In an interview with CNBC last week, he mentioned: 'We will achieve great things in the cryptocurrency space because we do not want any other country to embrace cryptocurrency; we want to be the leader.'
According to previous reports from BiTui, Wyoming Republican Senator Cynthia Lummis is drafting a bill that would direct the U.S. Treasury to purchase 1 million bitcoins over five years, with funding coming from Federal Reserve bank deposits and gold reserves.
Other states in the U.S. have also proposed bills for investing in Bitcoin, with Pennsylvania's Republican lawmakers introducing a bill in November that allows the Pennsylvania Treasury to invest in Bitcoin, digital assets, and cryptocurrency-based exchange-traded products.
The idea of establishing a strategic Bitcoin reserve has also faced some criticism. Former New York Federal Reserve Bank President Bill Dudley stated in a Bloomberg opinion piece last week that this would be a 'bad deal' for Americans.
An analysis report released by Barclays Bank this week suggests that funding for a strategic Bitcoin reserve may require Congressional approval and the issuance of new government bonds. Barclays analysts state that considering the possible ways to establish such a reserve, 'we suspect the plan will face strong resistance from the Fed.'
What will the subsequent trend be?
The crypto market currently has overly high expectations for the U.S. potentially establishing a strategic Bitcoin reserve while ignoring other countries. Grayscale Research indicates that sovereign wealth funds in Asia and the Middle East are more likely to be the next driving force.
Grayscale's research director Zach Pandl states: 'After Chairman Powell's remarks, Bitcoin's price plummeted, indicating that investors may be placing too much emphasis on the theoretical possibility of Bitcoin as a strategic reserve. Grayscale Research expects more nations to adopt Bitcoin, but the next step is more likely to come from sovereign wealth funds in Asia or the Middle East that manage highly diversified asset pools.'
Bitwise's European research director Andre Dragosch believes: 'I think the biggest trouble for the Fed right now is that even though the Fed is cutting rates, the financial environment is still tightening. Since September, long-term bond yields and mortgage rates have been rising, and the dollar is appreciating, which also means a tightening financial environment. The continued appreciation of the dollar also brings macro risks to Bitcoin, as the dollar's strength is related to the contraction of the global money supply, which is often detrimental to Bitcoin and other crypto assets. In fact, the Fed's net liquidity is continuously decreasing. In my view, the tightening of liquidity and the strengthening of the dollar are also the biggest risks facing BTC... On the other hand, the on-chain factors for BTC remain very favorable, especially the continuous decrease in exchange balances, which supports the hypothesis that the BTC supply gap continues to widen.'
The drop in Bitcoin has led to drastic changes in positions for both bulls and bears. According to charts from crypto analyst Skew, long positions were liquidated and short positions were profited as Bitcoin's price fell to the $100,000 to $98,000 range seeking support. Skew emphasizes that to reverse the trend, Bitcoin's price must reclaim the $100,000 to $101,400 range through spot buying and establish a foothold on the daily chart.
Additionally, the 4-hour chart shows that BTC bulls need Bitcoin to show strong buying power around $100,000 and successfully close above $101,400 to consolidate the upward trend. If this level cannot be maintained, a retest of the support level and buying accumulation area around $98,000 may occur.
Blockchain analysis platform Santiment's analysts express optimism and post on X: 'Considering that BTC is temporarily holding above $100,000, and the decline is not as significant compared to the S&P 500 index, this can actually be interpreted as a strong signal once it stabilizes in the next 24-48 hours.'
