Recently, the cryptocurrency market experienced a significant decline, mainly due to investors' concerns that the Federal Reserve might take a tough stance, leading to fewer interest rate cuts than expected in 2025.
Bitcoin (CRYPTO: BTC), as the largest cryptocurrency in the world, has seen its price continuously decline since the weekend. On Monday afternoon Eastern Time, Bitcoin was trading at about $93,260, down about 4% from last Thursday's peak of over $102,000. Meanwhile, Dogecoin (CRYPTO: DOGE) fell by 3.2%, and XRP (CRYPTO: XRP) also decreased by 3.1%.
The macro environment has a significant impact on cryptocurrencies
Last week, after the Federal Reserve concluded its final meeting of the year, the stock market immediately fell. The Federal Reserve revealed that it expects to cut rates only twice next year, compared to four times predicted at the September meeting. Although many investors and market experts had anticipated this, the news still took the market by surprise.
Additionally, investors are paying more attention to the overall macro environment. Despite durable goods orders in November being below expectations, U.S. Treasury yields are rising, which is generally a negative signal for Bitcoin and the entire cryptocurrency market.
Bitcoin was once seen as a hedge against inflation, but now it is not only influenced by U.S. Treasury yields but also the falling gold prices. At the same time, the U.S. dollar continues to strengthen, and Bitcoin, as an alternative currency, often has an inverse relationship with the dollar.
Traders' expectations for a Federal Reserve interest rate cut have changed
Traders are increasingly believing that the number of interest rate cuts by the Federal Reserve in 2025 will be fewer than previously expected. Over 91% of traders expect the Federal Reserve to pause rate cuts at the January meeting, with 37.5% believing there will only be one cut next year.
However, some companies are still continuing to purchase Bitcoin. For example, Michael Saylor's company MicroStrategy bought 5,262 Bitcoins last week for $561 million. Saylor has predicted that Bitcoin's price will soar to $13 million by 2045.
The market may be turbulent in the New Year
Given that Bitcoin has seen significant gains this year, it is more prone to a correction. It is expected that as the market looks for clues on inflation and interest rate trends, Bitcoin will continue to fluctuate.
Currently, most traders believe that inflation will remain stable and maintain above the Federal Reserve's target of 2%. However, investors are also preparing for the inflation effects that may arise from the tax cuts and tariff policies proposed by Trump.
If the employment report in December or the consumer price index in early January performs poorly, the market trend could change instantly. Due to the higher volatility of XRP and Dogecoin compared to Bitcoin, the price fluctuations of these two tokens may also be larger than those of Bitcoin.
Personal opinion
I personally hold an optimistic view on Bitcoin and believe that XRP is worth holding a small speculative position. However, I currently have no interest in Dogecoin.
As for how to invest $1,000 right now, it is recommended to make decisions based on individual risk tolerance and investment goals. Additionally, one may also pay attention to some professional investment analysis and advice.
Please note that Bram Berkowitz holds positions in Bitcoin and XRP, and (The Motley Fool) also holds these assets and recommends them. Investing involves risks, and decisions should be made cautiously.
