At the meeting on Wednesday, the Federal Reserve decided to keep interest rates unchanged, in line with market expectations. It also announced a significant slowdown in the pace of asset balance sheet reduction (QT), easing market liquidity pressure.
Buoyed by this, Bitcoin rose to $87,000, and Ethereum also returned above $2,000, with the top ten cryptocurrencies by market capitalization all performing well. The total cryptocurrency market capitalization is $2.81 trillion, up 3.51% from the previous day.
Policy Easing, the Federal Reserve Releases Dovish Stance
The Federal Reserve announced that it will maintain the federal funds rate target range at 4.25% to 4.50%, in line with market expectations. Faced with concerns about inflation and economic slowdown, Powell reassured investors in the press conference that the risk of recession is not high, inflation is temporary, and the US economy remains strong, with the job market still stable.
What has drawn more attention is that Powell announced in his subsequent speech that from April, the Federal Reserve will slow the pace of quantitative tightening (QT), reducing the monthly asset balance sheet reduction from $25 billion to $50 billion. Since the Federal Reserve launched QT in 2022, it has withdrawn hundreds of billions of dollars from the market each month, cumulatively exceeding $1.2 trillion, making the financial environment tighter. Now, the intensity of liquidity withdrawal has been reduced by 80%, releasing a signal of policy easing.
In addition, the Federal Reserve's "dot plot" shows that there will still be two rate cuts in 2025, meaning that by the end of 2025, the federal funds rate will drop to 3.75% to 4%, consistent with the dot plot as of the end of December 2024, indicating that the various changes since last December have not reduced the Federal Reserve's rate cut expectations, easing the short-term market tension caused by concerns about uncontrolled supply-side inflation.
Bitcoin Rebounds, Market Sentiment Neutral
Buoyed by the Federal Reserve's decision and Powell's dovish remarks, the risk asset market has seen a significant rise. In the US stock market, the S&P 500 index rose 1.07%, the Nasdaq index rose 1.4%, and the Dow Jones index rose 0.92%, with technology stocks performing particularly well. The cryptocurrency market has also rebounded, with the Bitcoin price breaking through $87,000 in the morning, up nearly 5% in 24 hours, and altcoins also generally seeing large gains.
It is worth noting that institutional investors seem to be abandoning their bearish sentiment. Since early February, there has been a continuous net outflow of funds from Bitcoin ETFs, with Bitcoin prices falling 11.4% over the past 30 days. However, Bitcoin ETFs have seen net inflows for three consecutive days this week, totaling about $500 million, indicating that institutional investors are repositioning themselves and may be preparing for a potential upswing.
According to Coinglass data, the current funding rates of mainstream CEXs and DEXs show that the cryptocurrency market has returned to a neutral state, no longer universally bearish, but also not bullish, with a neutral sentiment in the short term.
Arthur Hayes also posted on social media that the bottom for Bitcoin may have formed around $77,000, but the stock market could still face greater pressure before Powell fully pivots to support Trump's fiscal policy. He advised investors to "remain flexible and hold cash".
Where Will the Market Go Next?
Just as the FOMC revealed the latest monetary policy developments to the market, there is news that Trump will deliver a "major update" on cryptocurrency strategy in a speech at the Digital Asset Summit (DAS) tonight, potentially involving the expansion of national cryptocurrency reserves and the optimization of the regulatory framework.
DAS is an important forum where traditional finance and cryptocurrency assets converge. Trump's choice to speak at this event shows his intention to send a clear cryptocurrency policy signal to institutional investors and the traditional financial market, attracting more investors to the field. However, given Trump's history of "empty talk," the market's expectations are not high.
In general, the Federal Reserve's dovish pivot has injected a shot of adrenaline into the market, and the "emergency braking" of the balance sheet reduction pace, combined with the potential policy benefits of Trump's DAS speech, may jointly bolster the short-term rebound momentum of the cryptocurrency market. However, the "dose" of liquidity easing is still very restrained, and the medium- and long-term trend still needs to focus on the macroeconomic situation. April will be a key node, when the tariff effects will be fully manifested, and the first-quarter GDP data will test the resilience of the economy. A series of data will determine the Federal Reserve's further policy direction.
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