Last week, the Bit price broke through the all-time high of $104,000, continuing its consecutive rise and reaching a new record high of $108,388. Despite the lack of a definitive positive catalyst, the Bit price exhibited this trend, likely due to the existing Trump election effect combined with the year-end Santa Claus rally expectations. Ethereum also surpassed the $4,000 level again, raising expectations for a new all-time high.
However, this sentiment did not last long. The US Federal Reserve (Fed) significantly lowered its outlook for interest rate hikes next year at the December Open Market Committee (FOMC) meeting held in the early morning of the 19th. While it had expected four rate hikes next year as of September, this was reduced to two in December.
In fact, the US policy rate futures market, such as FedWatch, had already priced in two rate hikes next year. However, the market seemed to feel that on this day, Federal Reserve Chair Jerome Powell hinted at a much more hawkish monetary policy direction than before.
He indicated that the US economy is currently showing very strong performance, while the declining inflation rate has turned back up, and this is a source of concern. He also said that there is no urgency for rate cuts and that they will wait and see the data. This is a 180-degree change from the stance in September, when he said the economy was at risk and that a 50bp rate cut was urgently needed.
For now, the forecast is for about two rate hikes next year, but if inflation does not subside, there may be no rate hikes next year. The Fed's longer-run neutral rate, a concept similar to the neutral rate, also rose from 2.9% in September to 3.0% in December.
The Bit price began to wobble immediately after the Fed's dot plot was announced. It fell about 5% after Powell's announcement, dropping to around $100,000, and on the 20th, the decline widened further, plunging at one point to $92,000. Fortunately, on the night of the 20th, the US personal consumption expenditure price index came in lower than expected, causing it to rebound back to the $98,000 level. But it started adjusting again over the weekend and as of 2 am on the 23rd, it is fluctuating around the $96,000 level.
The Longing for a Decline Above $100,000 Becomes Reality
It was not just the crypto market that experienced this. All asset markets fell in unison after the Fed's FOMC press conference on the 19th. And the US 10-year Treasury yield rose. But the magnitude of the decline was overwhelming in the crypto market.
Compared to a week ago, Bit is down 5.53%, Ethereum is down 13.94%, and Solana is down 16.95%. In the case of SOL, the chart even recorded a death cross, indicating a poor trend. In contrast, the Nasdaq index fell only 2.22% compared to last week.
The Bit spot exchange-traded fund (ETF), which had been a strong support for the Bit price, also saw significant outflows. On the 19th (local time) after the FOMC, a record $671.9 million in net outflows occurred. On the 20th, when the Bit price plunged to $92,000, BlackRock's Bit spot ETF (IBIT) also set a record for the highest daily net outflow (-$72.7 million).
There were some signs of a decline, however. First, Bit whale inflows above the $100,000 price level sharply decreased, indicating that whales found the price burdensome. Futures trading volume in the derivatives market also plummeted, and the disclosed derivatives positions were 36.52% long bets and 63.48% short bets. The decline was somewhat anticipated.
However, there is no fundamental problem with Bit. The total assets of US Bit spot ETFs surpassed the total assets of gold ETFs on the 18th. Gold ETFs were launched in the US market 20 years ago in 2004. The Bit spot ETF has caught up to the level of assets accumulated over that time in just one year. The world is still changing towards Bit.
This Week's New Jobless Claims... Will US Employment Worsen?
So, what's next? Fed officials seem to have taken the market plunge into account, as they started lip service after the FOMC meeting. Chicago Fed President Austan Goolsbee, known as the "super dove," said in a public speech on the 20th (local time) that "our conservative outlook for rate cuts next year is because of the uncertainty about what policies the Trump administration will implement," and that "the key is that rates are still at a restrictive level."
John Williams, the New York Fed president and an expert on the neutral rate, said in a TV interview that the neutral rate is not 3.0% as shown in the Fed's dot plot. He explained, "In my view, the appropriate real neutral rate is currently 0.75%." If the real neutral rate is 0.75%, then the nominal rate would be 2.75%, 0.25 percentage points lower than the neutral rate shown in this FOMC dot plot.
Such remarks may continue for a while. But these are likely to remain just words. What's really important is whether US employment deteriorates rapidly enough to warrant an emergency rate cut, and whether inflation will fall back towards the 2% target. The most direct indicator related to this is the US consumer price index (CPI) to be released in early January.
Employment-related indicators are also scheduled to be released this week. On the 26th (Thursday), the US new jobless claims will be announced. If the US economy continues to maintain low unemployment and strong employment, it will be difficult for Bit to find upward momentum from the Fed's rate policy for the time being. Well then, I wish all readers successful investments this week.
