The Fed is on hold, but Bitcoin is soaring against the trend! Is it a storm coming or a good time?

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MarsBit
01-30
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Here is the English translation of the text, with the specified terms translated as requested: Last night at 3 am, the Federal Reserve decided to keep the benchmark interest rate in the range of 4.25% to 4.5% at its monetary policy meeting. This decision not only met market expectations, but also revealed the complex situation facing the US economy. The S&P 500, Dow Jones, and NASDAQ, which had initially fallen, subsequently rose against the trend, quickly breaking through the $104,000 mark for Bitcoin. Is this dramatic reversal the start of a new "spring" for the crypto market, or an unsustainable "bubble"? After Trump's return to the White House, how will his policies affect the Federal Reserve's decision-making and the economic direction? Does the Fed's decision to keep rates unchanged mean that Bitcoin will continue to rise, or are we about to see new turmoil? Let's explore and see how these events are intertwined. The Complex Situation of the US Economy: The Impact of Trump's Policies and the Inflation Challenge The Fed's decision to keep rates unchanged reflects its cautious attitude in the current economic situation. First, although the US economy has shown some growth momentum, especially a strong job market and slightly higher-than-expected GDP growth, inflation is still far from the Fed's 2% target. The inflation data for December 2024 shows that although it has declined compared to the previous months, it is still 2.9%, and price pressures remain high in certain sectors. At the same time, Trump's return to the White House has increased the uncertainty of his policies, making the Fed's decision-making more difficult. Trump has clearly stated during the campaign that he prefers to stimulate economic growth through tax cuts and increased government spending, and has promised to lower domestic prices through tariff policies. For the Fed, this means they not only have to deal with the volatility of endogenous economic data, but also need to pay attention to the potential risks brought by changes in external policies. For example, Trump's trade policy, tariff measures, and immigration policy may have a direct impact on prices, especially tariff measures that will increase the cost pressure of imported goods, further driving up inflation. In this scenario, although the Fed's decision-makers hope to see more inflation data decline, they are also very aware that an overly tight policy may limit economic growth and even exacerbate market instability. The Bitcoin Market's Response: Futures Market Driving Price Increase After the Fed announced that it would keep interest rates unchanged, the Bitcoin market reacted strongly. Initially, Bitcoin prices followed the traditional stock market decline, with the S&P 500 index, Dow Jones index, and NASDAQ (QQQ) all experiencing pullbacks. However, Bitcoin prices then reversed, breaking through $104,000, and at one point reaching a high of $104,782. According to data from Velo.data, the main driver of the price rebound was the futures market. Within an hour, about $15 million in positions were liquidated, causing Bitcoin's funding rate to rise. However, it should be noted that although Bitcoin has rebounded in the short term, market sentiment remains highly volatile. Coinglass data shows that over the past 24 hours, the amount of Bitcoin market liquidation has reached $250 million. This violent fluctuation reflects the high sensitivity of market participants to short-term trends, especially in the futures market, where the fierce competition between longs and has driven rapid price movements. Currently, Bitcoin has reached the key resistance area of $104,000 to $106,000, but whether this rebound can be sustained depends on the participation of the spot market. If the spot market buying volume continues to increase and the activity of investors in the spot market can support the price increase, then Bitcoin may accelerate to break through the psychological barrier of $105,000 and challenge higher price ranges. Trump's Policies and Market Dynamics: The Potential Impact of Tariffs and Inflation Trump's return to the White House has brought more uncertainty to the US economy. His economic policies may have a profound impact on both the traditional financial market and the cryptocurrency market in the short term. Specifically, the tariff policy may lead to further price increases in the domestic market, and this cost transmission will make it more difficult to control inflation. Although Trump's policy goal is to stimulate consumption by lowering prices, the direct consequence of tariffs is usually price increases, which makes the Fed more cautious in dealing with inflation. Against this backdrop, the demand for cryptocurrencies may change. As the volatility of the traditional financial market increases, cryptocurrencies as a tool to hedge traditional financial risks may attract more investors. However, the high sensitivity of the market also means that any policy adjustments or changes in economic data may trigger violent reactions. Therefore, investors need to maintain flexibility and adapt to changes in the policy environment and market sentiment. CIBC Capital Markets' Ali Jaffery pointed out that although the policy statement did not mention the Trump administration's policies, they do increase the rationale for keeping rates unchanged at the moment. "With repeated threats to Canada, Mexico, and other countries, the uncertainty around trade policy has increased. All of this makes the Fed more inclined to 'wait and see'." Although economic analysis suggests that the Fed's policy statement has a hawkish tone, they still hope the Fed will cut rates again in March. "But at this stage, this would require a significant downward revision to the non-farm payroll data benchmark, as well as a weak performance of the January inflation data. However, if the Fed fails to resume rate cuts in the coming months, we believe the window for rate cuts may close. Although the market still expects rate cuts in the second half of the year, we believe a series of tariff measures will impede this process and push inflation back up to 3%." Lindsay Rosner, Head of Diversified Fixed Income Investments at Goldman Sachs Asset Management, said: "While we still believe the Fed's easing cycle is not over, the FOMC needs to see more progress on inflation data before implementing the next rate cut. This is also reflected in their removal of the language about progress on inflation." Although the Fed has long maintained partisan independence from the White House, Trump has claimed to understand interest rates better than Fed officials, which may sow the seeds of conflict between him and the Fed. Last week, Trump told reporters, "I think I understand interest rates better than they do, especially the main person responsible for the decision." Facing pressure from the White House, Fed Chair Powell has been cautiously maintaining political neutrality. Last November, when asked how he would respond if Trump asked him to resign, Powell bluntly replied, "No." He also emphasized that Trump has no legal authority to remove Fed officials, as this is "not permitted by law." At the press conference, Powell reiterated the importance of the Fed's independence and said he would continue to "work quietly" and use tools to achieve his dual mandate. Last month, Fed officials hinted that they expect only two rate cuts in 2025, a more moderate rate cut path than previously anticipated. Policymakers will update their economic and interest rate projections at the next meeting in March. The Deeper Implications of Fed Policy: The Future Direction of Monetary Policy and the Crypto Market's Response The Fed's policy choices will profoundly impact market dynamics in the coming months. Currently, the Fed's monetary policy is still relatively tight, and the uncertainty of economic data and Trump's policies will determine the pace of future policy adjustments. Powell stated that the Fed is in no hurry to change its current policy stance, but if inflation continues to rise or economic growth exceeds expectations, the window for rate cuts may close.

For the cryptocurrency market, this means that there may be repeated fluctuations in the short term. Over the past year, the cryptocurrency market has experienced huge fluctuations, from a bull market to a bear market, and then to a new round of rebound. Currently, the upward trend of mainstream cryptocurrency assets such as Bitcoin is driven by the flow of funds in the futures market, but if the Federal Reserve adopts a more hawkish policy in the future (such as raising interest rates or reducing liquidity), the cryptocurrency market will face greater pressure.

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Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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