Bitcoin national reserve dream shattered? Powell's one sentence brought down the crypto market

The long-awaited interest rate cut has arrived as scheduled, but the market has not been as enthusiastic and uplifted as usual.

In the early morning of December 19, Beijing time, the Federal Reserve announced its final interest rate decision of the year, deciding to lower the federal funds rate target range by 25 basis points to 4.25%-4.50%, successfully achieving the third consecutive rate cut. To date, the Federal Reserve has accumulated a 100-basis-point cut in this round of the rate cut cycle.

Even with the sell-the-fact behavior, the release of liquidity would be a huge boon for the risk market, but this time it is different. The US stock market fell first out of respect, pricing it in with their actions. Choice data shows that as of the market close on the 18th Eastern Time, the Nasdaq fell 3.56%, the S&P 500 index fell 2.95%, the Dow Jones Industrial Average plunged over 1,000 points, a 2.58% drop, marking the 10th consecutive day of decline, the longest streak since October 1974.

The crypto market followed suit, with Bitcoin briefly falling below $10,000, touching $9.9,000, ETH dropping over 7.2% at its peak, and the altcoin sector broadly declining over 10%. Why did this rate cut result in such an outcome?

01

Hawkish expectations trigger market panic, Powell slaps down Trump

A rate cut is good news, but the risk market speculation revolves around one word - expectations. Federal Reserve Chairman Powell issued rare hawkish remarks while cutting rates, stating that the December rate cut decision was more challenging but the "right decision", emphasizing that the Federal Reserve will be "more cautious" in considering future policy rate adjustments, and that the decision on whether to cut rates by 2025 will be based on future data rather than current forecasts, with the Federal Reserve only considering further rate cuts after inflation improves.

Compared to the relatively consistent voting in the past, this rate cut also saw dissent, with Cleveland Fed President Mester voting against the rate decision, believing the rate cut should be skipped, reflecting the growing resistance to rate cuts.

The economic outlook released by the Federal Reserve on the same day also showed an upward revision of the economic growth rate and a downward revision of the unemployment rate, indicating the Federal Reserve's hawkish stance. Looking at the dot plot, based on this outlook, 10 out of 19 Federal Open Market Committee members believe that by the end of 2025, the federal funds rate target range will be lowered to between 3.75% and 4%, and considering the so-called "more cautious" approach, with 25 basis points as the base, the Federal Reserve seems to be able to cut rates at most twice next year, a significant pullback from the 4 cuts expected in September.

Against this backdrop, the already priced-in December rate cut news led to a sharp sell-off in US stocks, which is understandable, as the outlook for a soft landing remains to be seen. In fact, from a macroeconomic perspective, the severity is still within manageable limits. Although the hawkish rhetoric has emerged, the 2025 rate cut consensus remains, with only a slight upward shift in the neutral rate. From the Federal Reserve's perspective, the hawkish rhetoric is most likely a preemptive warning to address the uncertainty of Trump's future governance, in order to retain some room to prevent the inflationary impact of Trump's policy proposals.

Although the rate cut expectations have had a significant impact on the risk market, the crypto disaster has been even worse. Powell's one sentence caused Bitcoin to plummet over 5% and further dragged down the crypto market. According to Coinglass data, as of 5 pm, over 260,000 people were liquidated globally in the past 24 hours, with a total of $780 million in liquidations, $661 million in long liquidations, and $118 million in short liquidations.

At the press conference, when asked whether the Federal Reserve would establish a Bitcoin national reserve, Powell replied, "We are not permitted to own Bitcoin. The Federal Reserve Act specifies what the Federal Reserve can own, and the Federal Reserve does not seek to change that. That is something Congress should consider, but the Federal Reserve does not wish to modify the law."

Powell's attitude undoubtedly reflects opposition to cryptocurrencies, with the Federal Reserve not considering including Bitcoin on its balance sheet and not wishing to discuss the issue. And within his current term, Powell has clearly stated that he will not resign, and Trump does not have the power to replace him.

Coincidentally, just recently, Trump once again made his usual "great" claims, saying he would do great things in the crypto space, and when asked whether the US would establish a Bitcoin strategic reserve similar to the oil reserve, he bluntly said, "Yes, I think so." Even earlier, an anonymous transition team source revealed that Trump hopes to see Bitcoin reach $150,000 during his term, as cryptocurrencies are "another stock market" to him, and given Trump's clear "the stock market is everything" governance philosophy, this message has a high degree of credibility.

And on December 17, market news surfaced again, saying that Trump plans to establish a strategic Bitcoin reserve (SBR) through an executive order, intending to use the Treasury Department's Exchange Stabilization Fund (ESF) to purchase Bitcoin, which has already exceeded $200 billion. On the same day, the Bitcoin Policy Institute drafted the full text of this executive order and stated that the order would take effect immediately after being signed by Trump upon taking office.

Amid a series of news stimuli, the plan for a national Bitcoin reserve seems to be just within reach, and the market has high hopes for it, with the Polymarket vote on the Bitcoin reserve growing from 25% to 40%, and Bitcoin surging yesterday, briefly challenging the $110,000 mark. But now, Powell's remarks are a direct slap in the face of Trump, and if the Federal Reserve does not cooperate at the level, the so-called national reserve will obviously face strong obstacles.

02

The Federal Reserve has no interest, the Bitcoin national reserve faces daunting challenges

Taking the "Bitcoin Bill" proposed by Senator Cynthia Lummis as an example, this bill requires the government to purchase up to 1 million bitcoins over 5 years, with a maximum of 200,000 per year. Calculated at $10,000 per Bitcoin, excluding purchase premiums, the government would need to raise at least $100 billion. In terms of detailed operations, the funding can be composed of three parts: 1) using the Federal Reserve's Treasury remittances, up to $6 billion per year, but this scenario is less likely as the Federal Reserve's balance sheet is still in a loss position, with losses exceeding $200 billion, and the Federal Reserve has not remitted any funds to the Treasury since September 2023; 2) transferring funds from the Federal Reserve's capital surplus account to the Treasury's general fund, a method used in the FAST (Fixing America's Surface Transportation) Act, but if used to purchase Bitcoin, it would likely raise widespread public doubts about the Federal Reserve's independence; 3) the most feasible option is to adjust the fair value of the Treasury's gold reserves based on market prices, allowing the Federal Reserve to monetize the earnings on the official value of the Treasury's gold reserves. According to the Federal Reserve's financial statements, the Federal Reserve's official reserve assets include gold, special drawing rights, and coins, of which the gold represents Treasury gold certificates valued at slightly over $42.22 per troy ounce, with a nominal value of $11 billion, but if calculated at a market price of $2,700, the reserves would reach $703.4 billion. In fact, regardless of how Bitcoin is purchased, the US Treasury would need the full support of the Federal Reserve.

Here is the English translation of the text, with the specified terms preserved and not translated: On the other hand, the U.S. national reserve assets need to have high liquidity, which helps maintain the status of the U.S. dollar as an international reserve currency and serves as the ultimate means of payment. From this perspective, the highly volatile also does not seem to meet the standard. If the U.S. government were to purchase a large amount of , although it would further drive up its price, it would concentrate heavily on the government side, and when it comes time to sell in large amounts, the impact of slippage and volatility would be more than just a small part, and the government may even end up bearing a huge impairment loss, not to mention the rise of non-sovereign currencies, which may to some extent weaken the global recognition of the U.S. dollar. Under the accumulation of various reasons, the Federal Reserve's dislike of cryptocurrencies is deeply rooted, and Powell has also expressed opposition to cryptocurrencies on many occasions. It is worth noting that in this statement, Powell also left room, "this is something that Congress should consider," i.e., Congress can modify the bill to include in the reserves, but considering the complex entanglement of interests and the wide scope of impact, the possibility of functional modification is extremely slim. This is also why the Exchange Stabilization Fund's purchase of relatively more credible assets, which, unlike the Federal Reserve's path, is under the U.S. Treasury Department, and with the President's consent, the Treasury Department can bypass Congress to allocate funds and directly use the ESF to trade in gold, foreign exchange and other credit and securities instruments, with relatively flexible uses. Overall, although Trump has consolidated power in both houses in his current term, and he has also actively announced relevant plans, the probability of becoming a strategic reserve asset for the United States is still very low. However, for Trump, who does not take the usual path, anything is possible. After all, from a practical perspective, the U.S. government already has over 210,000 holdings, ranking first among global governments, and if a partial substitution of reserves is realized, the appreciation of can still play a very positive role for the heavily indebted United States. The FOMO tide of institutions is rising, and the crypto market is difficult to escape path differentiation In the long run, although it has encountered a Black Thursday in the short term, the prospects of the crypto market are still bright under the foreseeable regulatory benefits. For the upcoming 2025, institutions have also expressed highly optimistic sentiments. Bitwise's 2025 forecast gives clear price data, stating that the number of countries holding will double, ETFs will also see more inflows, will reach $200,000, and if strategic reserves are achieved, the sky is the limit, reaching $1 million by 2029. will undergo a narrative shift in 2025, reaching $7,000 driven by , stablecoins and tokenized projects. is targeting $750. In addition, it also stated that 2025 will be the year of IPOs for crypto companies, and will become the largest trading broker. VanEck's expectations are more clearly staged, stating that the cryptocurrency bull market will continue to develop in 2025 and reach its first peak in the first quarter. During this cycle peak, the price of is expected to be around $180,000, and the price of will exceed $6,000. Other well-known projects, such as and , may break through $500 and $10, respectively. After the first quarter, it is expected that the price of will correct by 30%, while the decline of will be greater, reaching 60%, the market will consolidate in the summer, and then rebound in the fall, with major tokens regaining growth and recovering to their previous historical highs before the end of the year. Compared to Bitwise, VanEck is more optimistic, believing that reserves will become a reality, with the federal government or at least one state (such as Pennsylvania, Florida or Texas) establishing reserves, and it also expects the number of countries mining using government resources to increase from the current 7 to double digits. On the other hand, VanEck has also made forecasts for niche areas, believing that , , , RWA, and AI agents will all see rapid development, and by 2025, the trading volume of will exceed $4 trillion, accounting for 20% of the spot trading volume; trading volume will reach $30 billion; the total value locked (TVL) of will reach 100,000 ; the total value of security tokenization will exceed $50 billion; and on-chain activity of AI agents will also exceed 1 million. Presto's forecast is also consistent, stating that the price of will reach $210,000, the / ratio will rebound to 0.05, will break through $1,000, and a sovereign nation or S&P 500 company will include in its treasury reserves. Looking at last year's forecasts, VanEck's success rate is about 56.6%, and Bitwise is also around 50%, so from an institutional perspective, the credibility is quite good. Overall, around $200,000 is the institutional peak forecast for in the coming year, and is around $6,000-$7,000, with institutions showing very strong bullish sentiment. However, from the current obvious path differentiation, although the bull market seems all rosy, risks are still everywhere, especially for , which are most susceptible to liquidity. In fact, even now, many holders will find that the coin price has not even returned to the previous bear market level. The lack of market liquidity can also be seen from the new coins on , as the "Cosmos effect" of listing is continuously weakening, and high-low swings have become the main theme. According to Chainnews statistics, as of December 19, the average decline of the 10 tokens listed on since November exceeded 57.94%, and for , which was just listed on December 17, it soared to $0.07 and then quickly retreated, currently trading at $0.033, a 51.81% drop. It is precisely because of the market predicament and overwhelming doubts that the wallet recently launched the function, hoping to activate trading volume by opening up low-cap potential tokens and stimulate the wallet ecosystem, in order to maintain the leading advantage in the fierce market competition. But from the current situation, the short-term increase in platform activity is prominent, while the long-term effect remains to be seen. In this regard, holding mainstream tokens may be the best choice in this bull market. Currently, the crypto market has rebounded, with trading at $16,652 and at $3,674.