The main event that caused volatility in the crypto currency market in the past week was the meeting of the Federal Open Market Committee (FOMC). In addition to emphasizing that the Fed cannot purchase Bitcoin as a strategic reserve asset under the law, the Fed's interest rate dot plot also revealed that the number of rate cuts in 2025 will be reduced from four to two, causing the market to re-examine the correction of risk asset prices.
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Bitcoin fell from a high of $107,000 to a low of $94,000, while other major currencies such as ETH, DOGE, ADA, and AVAX experienced even more severe declines, with most currencies falling by double digits in a single day. ETH also lost the $3,500 support level, and XRP fell below $2.2. Other DeFi tokens such as LINK and DOT also fell across the board, leading to the forced liquidation of over 330,000 high-leverage traders within 24 hours, with a total liquidation amount exceeding $1 billion.
However, the main driving force behind this sell-off was not the crypto market itself, but the flow of funds from buying to selling in the Bitcoin spot ETF. According to Farside data, on December 19, the Bitcoin ETF saw a record single-day outflow of $672 million, with Fidelity's FBTC and Grayscale's GBTC withdrawing $208.5 million and $188.6 million respectively, being the largest sources of capital outflow.
The Ethereum ETF was also not spared, with a net outflow of $60 million on the same day. Although the amount was far lower than the Bitcoin spot ETF, the price of Ethereum still fell by more than 9%, currently hovering around $3,400. The overall market is showing an increase in investor risk aversion, with capital being withdrawn from risk assets, temporarily interrupting the continuous upward momentum of Bitcoin since Trump's election. Investors are also re-evaluating whether Bitcoin's price is worth the high of $100,000.
The market is currently re-evaluating crypto currencies and other US stock risk assets based on different interest rate benchmarks, with prices undergoing significant corrections. However, this correction will not last too long, as the Fed's delay in rate cuts is just a false issue and is not the main factor affecting the upward trend of Bitcoin and crypto currencies. This downward adjustment has actually helped to cool the previously overly optimistic sentiment. Assuming the price remains around $100,000, it represents the resilience of Bitcoin's price, and investors don't need to worry too much.
Focus on the subsequent trend of DeFi tokens
The Fed's downward adjustment of the 2025 rate cut range in the interest rate dot plot will not affect the medium to long-term price trend of Bitcoin. Although the pace of rate cuts may slow down, the overall trend is still towards further rate cuts, and the Fed will undoubtedly accelerate rate cuts if the US economy experiences any unexpected deterioration. There is no need to worry about any possibility of rate hikes, and betting on the direction of rate cuts is a relatively safe approach in this scenario.
In fact, the market has overreacted to the Fed's statement on delaying rate cuts. At most, this statement only reduced the 2025 rate cut from the original expectation of 1% to 0.5%, with a benchmark rate of only 0.5%. This is not a very big difference for the currently flooded market. This drop is more like the reason for the main force to take profits on the wave, and it does not affect the overall structure of the bull market. Considering the possibility of a US economic recession, there is still a high probability of accelerated rate cuts.
This drop has helped cool the previously overly optimistic upward sentiment. Bitcoin has been too crazy in the past, rising from $60,000 to $100,000 in just 2 months. After the Fed's hawkish announcement, the pullback to $95,000 is a relatively healthy situation. Although it has led to the forced liquidation of many high-leverage investors, it does not affect the positions of long-term investors, and the pullback magnitude is also not large, with a weekly decline of only 5%. The market situation is still healthy.
Under the premise that the overall environment has not changed, DeFi tokens are the most severely affected sector, with weekly declines mostly between 10% and 20%. Considering that Trump is about to relax crypto token regulation, and there may be a series of DeFi policy positive news next year, coupled with Trump's recent meetings with industry leaders of crypto exchanges to discuss how to formulate related policies in the US, it is expected that the US will open up more DeFi-related innovations to crypto exchanges in the future.
In addition, the US is also expected to allow traditional banks to open their financial services to blockchain or crypto-related companies, and there will be more crypto-related companies obtaining bank account custody, transfer, or withdrawal services in the future. Under the premise of a more complete regulatory environment and services, we believe that DeFi tokens still have upside potential, and the previous Trump positive news has not been fully played out, just temporarily affected by the Fed's slower rate cuts.
Currently, most altcoins do not have independent trends, and they are basically just following Bitcoin's moves. These coins should wait for Bitcoin to firmly establish new highs before capital comes in to drive them up. Otherwise, even if they are pulled up, they will just fall back when Bitcoin retraces.
So now we can only wait for the market to confirm the trend, and then we can enter the market. We may miss out on a little bit of profit in the initial stage, but we have already made a profit by escaping at the stage high. As long as it is not a straight-line explosion of 30 points, we will still have an advantage when we enter the market.
