Author: Tong Deng, Jinse Finance
At 3 am, the Federal Reserve announced its interest rate decision, cutting rates by 25 basis points, and Federal Reserve Chairman Powell held a monetary policy press conference at 3:30 am.
Although the Altcoin market had seen a rebound after the previous three FOMC meetings, after the Federal Reserve officially announced a 25-basis-point rate cut this time, the market welcomed "Black Thursday", with Bitcoin falling below $100,000 and Altcoins plummeting by 20%.
What led to "Black Thursday"? What is the future trend of Federal Reserve policies? How do industry insiders view the current market situation?
I. Defensive Mode After the Peak
According to Coingecko data, the BTC price reached a historical high of $108,135 on December 17.
Subsequently, on December 18, the Bitcoin price once erased about 5% of its gains, to $103,765. The decline in Bitcoin triggered a panic sell-off by crypto investors, leading to a broad decline in cryptocurrencies.
The massive liquidation in the derivatives market accompanied the crypto market downturn. $78.09 million in BTC was liquidated, and $55.65 million in ETH was liquidated, with the crypto market bleeding profusely.
Total crypto liquidation. Source: CoinGlass
The dominance of long liquidation indicates that the crypto market was over-leveraged on the bullish side, mainly due to profit-taking and the opening of a defensive mode before the Federal Reserve's rate cut decision today.
Before this FOMC meeting, the sellers had already taken control of the market, and the selling pressure reflected the typical risk-averse sentiment before the event, with BTC cooling down.
Additionally, the ongoing adjustment in the crypto market also reflects the weakness in the US stock market. On December 17, the S&P 500 index fell 0.4% to close at 6,050.61 points, and the Nasdaq Composite index fell 64 points. The Dow Jones Industrial Average fell for the ninth consecutive trading day, the longest streak since 1978, closing down 0.61% at 43,339 points on December 17.
24-hour performance of the US stock market. Source: Financial Visualizations
Before the FOMC meeting, market participants had already focused their attention on the Federal Reserve's rate cut decision. The Federal Reserve's final interest rate decision in 2024 is a complex and highly volatile event.
II. 25-Basis-Point Rate Cut, but Powell Delivers Hawkish Remarks
This morning, the Federal Reserve concluded its annual interest rate decision for 2024, deciding to lower the benchmark interest rate by 25 basis points to the 4.25%-4.50% range, the third consecutive rate cut, in line with expectations. In the eight decisions this year, the Federal Reserve has cumulatively cut rates by 100 basis points, with one 50-basis-point cut and two 25-basis-point cuts, and five decisions to keep rates unchanged.
According to the median of the Federal Reserve's December dot plot, the Federal Reserve expects to cut rates twice in 2025, each by 25 basis points, compared to the September forecast of four 25-basis-point cuts; the Federal Reserve expects to cut rates twice in 2026, each by 25 basis points, consistent with the September forecast. The expected federal funds rate at the end of 2025 is 3.9%, up from 3.4% in the September forecast.
Powell's announcement that the Federal Reserve will only cut rates twice more in 2025 is undoubtedly a hawkish statement for the market, and in addition, the Federal Reserve Committee has raised its 2025 inflation forecast from 2.1% to 2.5%.
Some analysts believe this is because Trump's inauguration will bring some policy adjustments, such as raising tariffs on many countries, expelling millions of undocumented workers, and expanding the fiscal deficit. At the press conference, Powell emphasized that the Federal Reserve's policy readjustment is a signal that the central bank is prepared to adjust its policies based on the needs of the US economy.
Powell also stated that geopolitical turmoil remains a risk, and there is a high degree of uncertainty in the economic forecast for the next three years.
In this regard, Gennadiy Goldberg, head of US interest rate strategy at TD Securities, said: The Federal Reserve has sent a signal that they will not be as dovish as in the past, and they are inclined to have fewer rate cuts next year, and I think this is a signal that the market will continue to price in less than two rate cuts, and if the data is strong enough, it may move towards zero rate cuts. If the Federal Reserve does not see inflation falling to a sufficient degree, they will not be willing to continue cutting rates.
"Federal Reserve mouthpiece" Nick Timiraos pointed out: The addition of the phrase "magnitude and timing" in the Federal Reserve's policy statement suggests that the pace of rate cuts will be slowed to modify potential adjustments.
John Haar, managing director of Swan Bitcoin, said: The ultimate move to lower rates and hint at fewer rate cuts next year indicates that future rates will be relatively hawkish.
Affected by the Federal Reserve's hawkish remarks, US interest rate futures are pricing in about 49 basis points of rate cuts by the Federal Reserve in 2025, close to the 50 basis points forecast in the Federal Reserve's dot plot, compared to a market pricing of 75 basis points in rate cuts before the rate decision announcement.
Not only the rate cut expectations, but on the question of whether Trump will establish a Bitcoin reserve, Powell also made it clear: The Federal Reserve has no intention of holding Bitcoin. At the press conference after the FOMC meeting, Powell said: "We are not permitted to hold Bitcoin." Regarding the legal issue of holding Bitcoin, Powell said, "That's something Congress would have to consider, but we have no intention of seeking to change the law."
III. How do industry insiders view the current crypto market situation?
Regarding the short-term forecast of the Bitcoin price, crypto analyst Skew said that the decline in BTC "cleared positions on both sides" as long positions were stopped out and "short positions took profits".
Chris Burniske, a partner at Placeholder, posted on X saying, "If you're kicking yourself for not selling before the market pullback after the Fed FOMC, know that you really didn't have a big edge in predicting the market's reaction. Take this as an opportunity to slow down. Don't overtrade. In the long run, as long as you're patient, you'll be fine."
Andre Dragosch, head of European research at Bitwise, pointed out: "I think the Federal Reserve's biggest problem right now is that despite the rate cuts, 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 Bitcoin, as the appreciation of the US dollar is also related to the contraction of the global money supply, which is often unfavorable to Bitcoin and other crypto assets. In fact, the Federal Reserve's net liquidity continues to decline. 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 continues to widen."
According to Coinglass data, in the past 24 hours, the total liquidation amount across the network reached $120 million, of which long positions were liquidated for about $109 million, and short positions were liquidated for about $11.08 million.
As of the time of writing, the BTC price has fallen below $100,000, at $99,422.12, a 24-hour decline of 5.8%.
The Ethereum price has fallen below the $3,600 mark, at $3,594.01, a 24-hour decline of 7.3%.
Source: CoinTelegraph, CoinDesk, X, Coingecko, Jinse Finance
