#ChristmasMarketAnalysis

Crypto markets are in turmoil, with steep declines in major assets like Bitcoin and Ethereum since Dec. 18, 2024. The downturn began immediately after the Federal Reserve’s FOMC meeting, where policymakers issued a cautious statement about monetary policy and Jerome Powell, the Fed Chair, provided remarks that spooked markets. Jamie Coutts, the Chief Crypto at Real Vision, explains how tightening liquidity and macroeconomic factors are driving the sell-off.

The Federal Reserve’s decision to lower the federal funds rate by 0.25 percentage points on Dec. 18 initially seemed like a dovish move. However, the accompanying statements painted a different picture. Powell emphasized that while inflation has eased significantly, it remains above the Fed’s 2% target. He explained that the Fed’s policy rate—now at 4.25%-4.5%—remains “meaningfully restrictive” and that future rate cuts would slow unless there was “further progress on inflation.”

Powell’s comments about the economy’s strength, combined with projections of only two additional cuts in 2025, signaled that the Fed intends to maintain tighter liquidity conditions longer than markets had hoped. This tone sharply contrasted with expectations of a more aggressive easing cycle, catching investors off guard and leading to immediate selling pressure across risk assets, including cryptocurrencies.