On Wednesday afternoon local time, the Federal Reserve announced a 25-basis-point cut in the benchmark policy rate, but hinted that the number of rate cuts in 2025 could be lower than previously expected, causing US stocks and the Altcoin market to plummet.
The Federal Reserve's latest quarterly economic forecast shows that there may only be two rate cuts in 2025 - lower than the four forecast in September and lower than the three expected by the market before the meeting, meaning they will be more cautious in balancing inflation and economic growth. Federal Reserve members' forecasts for personal consumption expenditures (PCE) and core PCE inflation next year have risen from 2.1% and 2.2% forecast in September to 2.5%, respectively.
Powell described this shift as a "new phase" of monetary policy and emphasized that after a 100-basis-point rate cut in 2024, interest rates are now clearly closer to a neutral stance.
As of the close of the day, the three major stock indexes fell across the board, with the Dow Jones Industrial Average initially closing down 2.59%, setting the longest single-day losing streak in 50 years (down for 10 consecutive trading days); the S&P 500 index closed down 2.95%, and the Nasdaq closed down 3.56%. The US dollar soared to a two-year high, and the Chicago Board Options Exchange Volatility Index (also known as the VIX index and the Wall Street Fear Index) soared 58% to 25, reflecting increased investor uncertainty and heightened anxiety about future interest rates.
Did Powell's remarks 'slap' Trump?
At the press conference on Wednesday, in response to an Axios reporter's question about Trump's idea of establishing a strategic BTC reserve after taking office, Powell said: "We are not allowed to own Bit, 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 wish the Federal Reserve to change the law."
Bit fell to $104,000 after the Federal Reserve's announcement, and then dropped to around $100,256, a nearly 5% decline in 24 hours, after Powell's remarks. Altcoins fell even more, with XRP, ADA, and LTC down nearly 10%.
Trump has repeatedly stated that he wants to establish a strategic BTC reserve. Last week in an interview with CNBC, he mentioned: "We will make great achievements in the field of Altcoins, because we do not want any other country to embrace Altcoins, we want to be the leader."
As previously reported by Bit, Republican Senator Cynthia Lummis of Wyoming is drafting a bill that will instruct the US Treasury Department to purchase 1 million BTCs over five years, with the purchase funds coming from Federal Reserve bank deposits and gold reserves.
Other US states have also proposed bills to invest in Bit. A Republican Pennsylvania state legislator proposed a bill in November that would allow the Pennsylvania Treasury Department to invest in Bit, digital assets, and Altcoin-based exchange-traded products.
The idea of establishing a strategic BTC reserve has also faced some criticism. Former New York Federal Reserve Bank President Bill Dudley wrote in a Bloomberg opinion piece last week that this would be a "bad deal" for Americans.
A Barclays Bank analysis report released this week believes that funding a strategic BTC reserve may require congressional approval and the issuance of new government debt. Barclays Bank analysts said that given the likely ways of establishing such a reserve, "we suspect the plan will face strong resistance from the Federal Reserve."
What will the future trend be?
The Altcoin market currently has overly high expectations for the US potentially establishing a strategic BTC reserve, while ignoring other countries. Grayscale Research's research shows that sovereign wealth funds in Asia and the Middle East are more likely to be the next driving force.
Grayscale Research head Zach Pandl said: "The sharp drop in Bit price after Fed Chair Powell's speech suggests that investors may have overestimated the theoretical possibility of a BTC strategic reserve. Grayscale Research expects more nation-states to adopt Bit, but the next step is more likely to be sovereign wealth funds in Asia or the Middle East, which already manage highly diversified asset pools."
Bitwise Europe Research Head Andre Dragosch believes: "I think the Federal Reserve's biggest problem right now is that despite the rate cut, the financial environment is still tightening. Yields on long-term bonds and mortgage rates have been rising since September, and the US dollar has appreciated, which also means a tightening of financial conditions. The continued appreciation of the US dollar also poses macroeconomic risks to Bit, as the appreciation of the US dollar is also related to the contraction of the global money supply, which is often unfavorable to Bit and other Altcoins. In fact, the Federal Reserve's net liquidity has been steadily declining. In my view, the tightening of liquidity and the strength of the US dollar are also the biggest risks facing BTC...On the other hand, the on-chain factors of BTC continue to be very favorable, especially the continued decline in exchange balances, which supports the hypothesis that the BTC supply gap will continue to widen."
The drop in Bit has led to a dramatic change in the positions of bulls and bears. According to charts from Altcoin analyst Skew, long positions have been stopped out and short positions have profited, with Bit price falling to the $100,000 to $98,000 range seeking support. Skew emphasized that to reverse the downtrend, Bit price must regain the $100,000 to $101,400 range through spot buying and consolidate its footing on the daily chart.
Additionally, the 4-hour chart shows that BTC bulls need Bit to show strong buying power around $100,000 and successfully close above $101,400 to consolidate the uptrend. If unable to hold this level, it may retest the support around $98,000 and the accumulation area.
Blockchain analysis platform Santiment analyst expressed optimism and posted on X saying: "Considering that BTC is temporarily holding above $100,000 and the decline is not as large as normal volatility compared to the S&P 500 index, if it stabilizes within the next 24-48 hours, this can actually be interpreted as a bullish signal."
