Deng Tong, Jinse Finance
At 3 am, the Federal Reserve announced its interest rate decision and economic outlook summary, followed by a monetary policy press conference by Fed Chair Powell at 3:30 am. Although Altcoins have rebounded after the previous three FOMC meetings, the market has continued to plummet after the Fed officially announced a 25-basis-point rate cut this time.
What has caused this round of cryptocurrency market decline? What is the future trend of Fed policy? How do industry insiders view the current market situation?
I. Risk-averse 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, reaching $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 sluggish crypto market. $78.09 million in BTC was liquidated, and $55.65 million in ETH was liquidated, resulting in a bloodbath in the crypto market.
Total crypto liquidation amount. Source: CoinGlass
The dominance of long liquidation indicates that the crypto market has been over-leveraged on the bullish side, mainly due to profit-taking and the opening of a risk-averse mode before the Fed's rate cut decision today.
Before this FOMC meeting, 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.
In addition, the continued adjustment of the crypto market also reflects the weakness of 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% on December 17 at 43,339 points.
24-hour performance of the US stock market. Data source: Financial Visualizations
Before the FOMC meeting, market participants had already focused their attention on the Fed's rate cut decision. The Fed's final 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 Fed's annual rate decision for 2024 was concluded, with the central bank deciding to lower the benchmark 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 Fed 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 Fed's December dot plot, the Fed expects to cut rates twice in 2025, each by 25 basis points, compared to an expectation of four 25-basis-point cuts in September; the Fed 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 September.
Powell's announcement that the Fed will only cut rates twice more in 2025 is undoubtedly a hawkish statement for the market. In addition, the Federal Reserve Committee also 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 multiple countries, expelling millions of undocumented workers, and expanding the fiscal deficit. Powell emphasized in the press conference that the Fed's policy readjustment is a signal that the central bank is prepared to adjust its policy according to 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 outlook for the next three years.
In this regard, Gennadiy Goldberg, US rates strategy head at TD Securities, said: The Fed 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. 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 Fed does not see inflation falling to a sufficient degree, they will not be willing to continue cutting rates.
"Fed Mouthpiece" Nick Timiraos pointed out: The Fed's policy statement added the phrase "pace and extent", hinting 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 imply fewer rate cuts next year indicates that future rates will be relatively hawkish.
Affected by the Fed's hawkish remarks, US interest rate futures are pricing in about 49 basis points of rate cuts by the Fed in 2025, close to the 50 basis points forecast in the Fed's dot plot, compared to a pricing of 75 basis points of 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 clearly stated: The Fed has no intention of holding Bitcoin. Powell said in the post-FOMC press conference: "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 Bitcoin price, crypto analyst Skew said that the decline in BTC has "bidirectional" cleared "positions", as long positions were stopped out and "short positions took profits".
Chris Burniske, 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 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 Fed'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 macro risks to Bit, as the rise in the US dollar is also associated with a contraction in the global money supply, which is often unfavorable for Bit and other crypto assets. In fact, the Fed's net liquidity has continued to decline. In my view, the tightening of liquidity and the strength of the US dollar are also the biggest risks facing Bit... On the other hand, the on-chain factors of Bit continue to be very favorable, especially the continued decline in exchange balances, which supports the hypothesis that the Bit supply gap will continue 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 accounted for about $109 million in liquidations, and short positions accounted for $11.08 million in liquidations.
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, Jinrong Shuju, Jinse Finance
