The Federal Open Market Committee (FOMC) meeting was the main event that caused volatility in the cryptocurrency market over the past week. Chairman Powell emphasized that, according to the law, the Fed cannot purchase Bitcoin as a strategic reserve asset. Furthermore, the Fed's dot plot indicates that rate cuts in 2025 will decrease from four to two, prompting the market to reassess the price correction of risk assets.
Bitcoin fell from a high of $107,000 to a low of $94,000, while other major currencies like ETH, DOGE, ADA, and AVAX experienced even more severe declines, with most coins dropping double digits in a single day. ETH also lost the $3,500 support level, while XRP fell below $2.2. Other DeFi tokens like LINK and DOT also saw a broad decline. The strong correction led to over 330,000 high-leverage traders being forced to liquidate within 24 hours, with a total liquidation amount exceeding $1 billion.
However, the main force behind this sell-off is not the crypto market itself, but the flow of funds from Bitcoin spot ETF transitioning from buying to selling. According to Farside data, on December 19, Bitcoin ETFs experienced a record single-day outflow, with a net outflow of $672 million, where 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 the downturn, with a net outflow of $60 million on that day. Although the amount is far lower than that of Bitcoin spot ETFs, Ethereum's price still fell by over 9%, currently hovering around $3,400. Overall, the market is showing increased risk-averse sentiment, with significant funds withdrawing from risk assets, temporarily interrupting Bitcoin's continuous rise since Trump's election. Investors are also reassessing whether Bitcoin's price is worth the high price of $100,000.
The market is currently reassessing cryptocurrencies and other U.S. stock risk assets based on different interest rate benchmarks, resulting in significant price corrections. However, we expect this correction will not last long, as the Fed's delay in rate cuts is merely a false topic and not the main factor affecting Bitcoin's and cryptocurrencies' upward trends. This adjustment instead helps to cool the overly optimistic sentiment from before. Assuming 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 help 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 adoption of cryptocurrencies worldwide, with significant growth in awareness, ownership, and participation in activities related to cryptocurrencies in countries such as Nigeria, South Africa, and the Philippines.
Additionally, according to their survey questionnaire, 93% of people globally have some understanding of cryptocurrencies, with 51% indicating comprehension, and 42% owning crypto 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's embrace of cryptocurrencies is largely due to economic difficulties. For example, 65% of respondents in Nigeria view it as a store of value against currency depreciation, while 58% believe cryptocurrencies are the currency of the future. Despite emerging markets showing higher acceptance of cryptocurrencies, global barriers such as market volatility, fraud, and lack of awareness still exist. Nevertheless, users in these regions are willing to overcome challenges to combat local economic issues.
B. On December 18, the CEO of Crypto.com met with Trump, and CRO surged by 17%.
As the Trump administration is about to take office, in order to fulfill previous campaign promises of being crypto-friendly, there have been reports of Trump meeting with many high-level figures in the cryptocurrency industry to discuss regulatory policies of his new government. However, these discussions remain speculative with no reliable information emerging. The CEO of Crypto.com posted a photo with Trump on X social media yesterday, and the price of CRO tokens immediately surged by several dozen percentage points, reaching a ten-day high.
He expressed during an interview that he was honored to have the opportunity to meet with President Trump and looked forward to cooperating with the new government to establish and advance clear regulations for the cryptocurrency industry, aiming to make the United States a global leader in crypto assets and innovation. Previously, other industry leaders had also hinted at collaborating with the Trump administration to formulate more friendly and clear regulatory policies. Analysts are speculating about which high-level crypto executives Trump met with, suggesting that the tokens of these companies could rise.
Previous cases include the founder of Cardano stating that he will focus on assisting in the formulation of legislative frameworks in 2025, which pushed up the price of ADA tokens. Additionally, there are rumors that the CEO of Ripple also met with Trump, but currently, 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 Trump administration opening doors to more cryptocurrency products.
C. On December 19, the Fed cut rates by one basis point and adjusted next year's rate cut expectation to only two basis points.
The U.S. Federal Reserve (Fed) announced a reduction in the benchmark interest rate by 0.25% to a range of 4.25%-4.5%, marking the third consecutive rate cut in 2024. Although inflation has not completely 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 depend on the progress of inflation reduction.
The policy statement added language regarding the magnitude and timing, implying that the Fed may slow the pace of rate cuts. Inflation remains a challenge, and they expect the core personal consumption expenditures (PCE) inflation rate to drop to 2.5% by 2025, higher than 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 assumption, the Fed's dot plot indicates that decision-makers 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 has also triggered a sell-off of risk assets, with Bitcoin dropping 5% after the announcement, impacting the price performance of other competing coins, which fell between 5% and 10%. The market's funding attitude is expected to reassess the outlook.
DeFi price corrections are excessive; related tokens' subsequent trends should be monitored.
First of all, we believe that the Fed's dot plot this time, which lowered the expected rate cut for 2025, will not impact Bitcoin's price trend in the medium to long term. Although rate cuts may slow down, the trend still points towards continued rate cuts. As long as the U.S. economy shows any unexpected deterioration, the Fed will undoubtedly accelerate rate cuts, and investors need not worry about the possibility of any rate hikes. In this scenario, betting on the direction of rate cuts is a relatively safe approach.
In fact, the market has overreacted to the Fed's statement on delaying rate cuts. This statement merely adjusts the expected rate cut in 2025 from 1% to 0.5%, with the benchmark rate at only 0.5%. This is not a significant difference for the currently flooded market. We tend to believe that this decline is more like a reason for major players to take profits, and does not affect the overall structure of the bull market. Considering the possibility of a U.S. economic recession, accelerated rate cuts still have a high likelihood.
This drop helps to cool the previous overly optimistic rising sentiment. Bitcoin has seen too much craziness in the past, rising from $60,000 to $100,000 in just two months. A pullback to $95,000 after the Fed's hawkish declaration is a healthier situation. Although many high-leverage investors were forced to liquidate, it does not affect the positions of long-term investors. Additionally, the extent of the pullback is not large, with a weekly decline 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 typically reaching between 10% and 20%. Considering that the Trump administration is about to relax regulations on crypto tokens, a series of favorable DeFi policies may emerge next year. Furthermore, it has been rumored that Trump has recently been meeting with high-level figures in the cryptocurrency exchange industry to discuss how to formulate the upcoming U.S. cryptocurrency-related policies. It is expected 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. It is expected that a more comprehensive regulatory environment and services will emerge. Under these unchanged premises, we believe that DeFi tokens still have potential for upward movement. The previous wave of favorable policies from Trump has not ended; it has only been temporarily affected by the Fed's slowdown in rate cuts, and there is still a chance for a resurgence in growth.
Last week's review: [MICA RESEARCH] Bitcoin stabilizes at $100,000, with funds flowing into the DeFi ecosystem.
Statement: The article only represents the personal views of the author and does not reflect the views or positions of Block. All content and opinions are for reference only and do not constitute investment advice. Investors should make their own decisions and trades; the author and Block will not bear any responsibility for any direct or indirect losses incurred by investors' trades.
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"[MICA RESEARCH] The Fed's hawkish stance causes market corrections, but the trend of rate cuts remains unchanged" was first published on (Block).
