Author: Chainnews
The long-awaited rate cut has arrived as scheduled, but the market has not been as enthusiastic and uplifted as usual.
In the early morning of December 19th Beijing time, the Federal Reserve announced its last interest rate decision of the year, deciding to lower the target range for the federal funds rate 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-cutting cycle.
Even though there is a sell-the-fact behavior, the release of liquidity is a huge boon for the risk market, but this time it is different. The US stock market fell first, using action to price in the decision. Choice data shows that as of the close of the Eastern US time on the 18th, the Nasdaq fell 3.56%, the S&P 500 index fell 2.95%. The Dow Jones plunged over 1,000 points, a drop of 2.58%, marking the 10th consecutive day of decline, the longest streak since October 1974.
The Altcoin market followed suit, with Bit once falling below $10,000, touching $9.9,000, ETH falling as much as 7.2%, and the Altcoin sector plummeting more than 10% across the board. Why did this rate cut lead to such a result?
01 Hawkish expectations trigger market panic, Powell slaps down Trump
A rate cut is good news, but the speculation in the risk market revolves around one word - expectations. Federal Reserve Chairman Powell issued rare hawkish remarks during the rate cut, stating that the December rate cut decision was more challenging, but was the "right decision", emphasizing that the Federal Reserve will be "more cautious" in considering adjustments to policy rates going forward, and whether the Federal Reserve will cut rates in 2025 will be based on future data, not current forecasts, and the Federal Reserve will only consider 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 Harker voting against the rate decision, believing the rate cut should be skipped, reflecting the growing resistance to the rate cut.
And in the economic outlook released by the Federal Reserve on the same day, the economic growth rate was revised upward and the unemployment rate was revised downward, also reflecting 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 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 times expected in September.
Against this backdrop, the US stock market, which had already digested the December rate cut news, saw a sharp decline, which was understandable, as the soft landing of the market remains to be seen. In fact, from a macroeconomic perspective, the severity is still within a controllable range. Although the hawkish rhetoric has emerged, the consensus on the 2025 rate cut remains, only the neutral rate has risen somewhat. From the Federal Reserve's perspective, the hawkish rhetoric is most likely a preemptive warning to deal with the uncertainty of Trump's subsequent administration, in order to reserve some space to prevent the inflation surge brought by Trump's policy proposals.
Although the rate cut expectations have had a significant impact on the risk market, the disaster in the Altcoin market has been even worse. A single sentence from Powell caused Bit to fall more than 5% and further dragged down the Altcoin 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 Bit national reserve, Powell replied, "We are not permitted to own Bit. The Federal Reserve Act specifies what the Federal Reserve can own, and the Federal Reserve does not seek to change that. This is something Congress should consider, but the Federal Reserve does not wish to amend the law."
Powell's attitude undoubtedly reflects opposition to Altcoins, with the Federal Reserve not considering including Bit 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 theory", stating that he will do some great things in the field of Altcoins, and when asked whether the US will establish a Bit strategic reserve similar to the oil reserve, he even said directly: "Yes, I think so." Even earlier, an anonymous transition team source revealed that Trump hopes to see Bit break through $150,000 during his term, because Altcoins are "another stock market" to him, and considering Trump's clearly stated "the stock market is everything" governing theory, this message has a high degree of credibility.
And on December 17, market news came again, saying that Trump plans to establish a strategic Bit reserve (SBR) through an executive order, planning to use the Treasury Department's Exchange Stabilization Fund (ESF) to purchase Bit, which has already exceeded $200 billion. On the same day, the Bit Policy Institute drafted the full text of this executive order and stated that the order will take effect immediately after being signed by Trump upon taking office.
Amid a series of news stimuli, the Bit national reserve plan seems to be just within reach, and the market has high hopes for it, with the Polymarket vote on the Bit reserve growing from 25% to 40%, and Bit even surging yesterday, once challenging the $110,000 new threshold. 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 intention, the Bit national reserve faces daunting challenges
Taking the "Bit Bill" first proposed by Senator Cynthia Lummis as an example, this bill requires the government to purchase up to 100,000 Bit over 5 years, at a maximum of 20,000 per year. Calculated at $10,000 per Bit, excluding premiums in the purchase, the government would need to raise at least $100 billion. In terms of detailed operations, the funding can be composed of three parts: one is to use the Federal Reserve's Treasury remittances, up to $6 billion per year, but this plan is less likely, as the Federal Reserve's balance sheet is still in a loss state, with losses exceeding $200 billion, and in fact, the Federal Reserve has not remitted any funds to the Treasury Department since September 2023. The second is to transfer funds from the Federal Reserve's capital surplus account to the Treasury Department's general fund, a method used in the FAST (Fixing America's Surface Transportation) Act, but if used to purchase Bit, it would likely raise widespread public doubts about the Federal Reserve's independence.
Compared to the first two, the third option is more feasible, which is to adjust the fair value of the Treasury's gold reserves according to market prices and allow the Federal Reserve to marketize the earnings of the official gold reserves. According to the Federal Reserve's financial statements, the Federal Reserve's official reserve assets are gold, special drawing rights, and coins, of which gold represents Treasury gold certificates denominated in US dollars, calculated at an official price slightly above $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 Bit is purchased, the US Treasury Department will need the strong support of the Federal Reserve.
On the other hand, the United States' national reserve assets need to have high liquidity, which helps maintain the status of the US dollar as an international reserve currency and serves as the ultimate means of payment. From this perspective, the highly volatile Bitcoin also does not seem to meet the standard. If the US government were to purchase a large amount of Bitcoin, although it would further drive up its price, it would also concentrate Bitcoin heavily on the government side. When it comes time to sell in large quantities, the impact of slippage and volatility would be more than just a small amount, and the government may even end up bearing a huge impairment loss. Moreover, the rise of non-sovereign currencies may to some extent weaken global recognition of the US dollar.
Due to a combination of various reasons, the Federal Reserve's dislike of cryptocurrencies runs deep, and Powell has previously expressed opposition to cryptocurrencies on multiple occasions. It is worth noting that in this statement, Powell also left room, saying "this is something Congress should consider," meaning that Congress could modify the bill to include Bitcoin in the reserves, but given 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 (ESF) purchasing relatively more credible, and its path is different from that of the Federal Reserve, as the ESF is under the US Treasury Department. With the President's approval, the Treasury Department can bypass Congress 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 during his term, and he has actively announced relevant plans, the probability of Bitcoin becoming a strategic reserve asset for the United States is still very low. However, for the unconventional Trump, anything is possible. After all, from a practical perspective, the US government already has over 210,000 Bitcoin holdings, ranking first among global governments. If a partial substitution of reserves is realized, the appreciation of Bitcoin could play a very positive role for the heavily indebted United States.
03 Institutional FOMO Tide Rises, Crypto Market Difficult to Escape Path Differentiation
In the long run, although it has encountered a brief Black Thursday, the prospects of the crypto market remain bright under the foreseeable regulatory benefits. For the upcoming 2025, institutions have also expressed a high degree of optimistic sentiment.
Bitwise's 2025 forecast provides clear price data, stating that the number of countries holding Bitcoin will double, Bitcoin ETFs will also see more inflows, and Bitcoin will reach $200,000. If strategic reserves are achieved, the sky is the limit, and it will reach $1 million by 2029. Ethereum will undergo a narrative shift in 2025, reaching $7,000 driven by Layer 2, stablecoins, and tokenization projects. Solana is aiming for $750. It also stated that 2025 will be the year of crypto company IPOs, with Coinbase becoming the largest trading broker.
VanEck's expectations are more clearly staged, stating that the cryptocurrency bull market will continue to develop in 2025, reaching its first peak in the first quarter. During this cycle peak, Bitcoin's price is expected to be around $180,000, and Ethereum's price will exceed $6,000. Other well-known projects, such as Solana and Sui, may break through $500 and $10, respectively. After the first quarter, it is expected that BTC's price will correct by 30%, while Altcoins will see a larger drop of 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 Bitcoin reserves will become a reality, with the federal government or at least one state (such as Pennsylvania, Florida, or Texas) establishing Bitcoin reserves, and the number of countries using government resources for mining is expected to increase from the current 7 to double digits. On the other hand, VanEck has also made predictions for niche areas, believing that stablecoins, DeFi, Non-Fungible Tokens, Bitcoin Layer-2, Real-World Assets, and AI agents will all see rapid development. By 2025, DEX trading volume will exceed $4 trillion, accounting for 20% of CEX spot trading volume; NFT trading volume will reach $30 billion; Bitcoin Layer-2 TVL will reach 100,000 BTC; the total value of security tokenization will exceed $50 billion; and on-chain activity of AI agents will exceed 1 million.
Presto's forecast is also consistent, stating that the Bitcoin price will reach $210,000, the ETH/BTC ratio will rebound to 0.05, Solana will break through $1,000, and a sovereign nation or S&P 500 company will include Bitcoin in their treasury reserves.
Looking at last year's forecasts, VanEck's success rate is around 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 Bitcoin in the coming year, with Ethereum around $6,000-$7,000, and the institutional bullish sentiment is very strong.
However, given the current obvious path differentiation, although the bull market seems all rosy, risks are still ubiquitous, especially for Altcoins, which are most susceptible to liquidity impacts. In fact, even now, many Altcoin holders 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 Binance, 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 Binance since November was over 57.94%. Taking PENGU, which was just listed on December 17, as an example, it surged to $0.07 upon launch and then quickly retreated, currently trading at $0.033, a 51.81% drop.
It is precisely because of the market predicament and doubts that Binance Wallet recently launched the Binance Alpha feature, hoping to activate trading volume by opening up low-cap potential tokens and stimulate the wallet ecosystem to maintain its leading advantage in the fierce market competition. However, from the current perspective, the short-term platform activity enhancement 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 Bitcoin trading at $16,652 and ETH at $1,674.
