Crypto market downturn continues since Fed's hawkish 2025 rate cut signals
Quick Take
- The cryptocurrency market has sharply declined since the U.S. Federal Reserve’s 25 basis point rate cut on Wednesday, with bitcoin dropping by over 10%.
- Despite the rate reduction, Fed Chair Jerome Powell’s hawkish comments about slower rate cuts and revised inflation projections have weighed on risk assets.
The cryptocurrency market has continued its downtrend following the U.S. Federal Reserve's expected 25 basis point rate cut on Wednesday. The global cryptocurrency market cap now stands at $3.33 trillion, an 11.8% decline in the past 24 hours, according to CoinGecko data.
Bitcoin has fallen by over 10% since the Federal Reserve's Dec. 18 rate decision. "I would have expected the correction to occur later, possibly in January," Nansen Principle Research Analyst Aurelie Barthere told The Block. "The Fed's hawkish stance and political uncertainty around fiscal priorities in the U.S., including ongoing shutdown negotiations, likely contributed to the sell-off."
Barthere sees a $90,700–$91,000 price range for bitcoin, representing a post-U.S. election support level.
"So far, the correction seems orderly, with no signs of panic in trading volumes, which suggests the potential for buy-the-dip activity, so the correction seems normal and healthy after crypto outperformed all other financial assets post-November 5," Barthere said.
Barthere also highlighted that Thursday saw the largest single-day outflows from U.S. spot bitcoin exchange-traded funds (ETFs), with $680 million exiting the products, ending a 15-day streak of positive inflows.
"ETF outflows and prices are reflexive, and we need to see some price stabilization for outflows to taper," she said.
Despite the U.S. central bank's rate cut on Wednesday, risk assets have been more influenced by signals from Fed Chair Jerome Powell’s post-FOMC meeting press conference, which indicated a more hawkish stance on monetary policy moving forward. This reaction occurred even though the federal funds rate was lowered to a range of 4.25% to 4.50%, its lowest level since early 2022.
U.S. central bank signals slower pace of rate cuts
Several factors, including the Fed's revised core PCE inflation projections for 2025 from 2.2% to 2.5%, contributed to the current risk-off shift in global markets, along with the U.S. central bank's more hawkish stance indicating only two rate cuts for 2025 instead of the previously anticipated four.
"We are in a new phase of the process," Powell said at a press conference. "From this point forward, it's appropriate to move cautiously and look for progress on inflation."
In his post-FOMC speech, Powell referenced President Trump's proposal for a U.S. strategic bitcoin reserve, stating that the U.S. central bank is "not allowed to own bitcoin." However, that doesn't preclude it from existing; K33 Research cited Barclays analysts, who noted that establishing a bitcoin reserve would require either a congressional vote or potentially an executive order—processes beyond the Fed’s authority.
Republican Senator Cynthia Lummis has introduced a bill to establish such a reserve, which would see the U.S. Treasury purchasing 200,000 bitcoins annually until the stockpile reaches one million tokens.
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