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The broader crypto market skilled a pronounced downturn following yesterday’s Federal Open Market Committee (FOMC) assembly, held on December 18. After the US Federal Reserve delivered a 25-basis-point price reduce as anticipated, it additionally signaled fewer cuts in 2025 than beforehand anticipated.
In response, the Bitcoin worth fell by greater than 5%, dropping under the $100,000 mark earlier than displaying slight indicators of restoration. Altcoins noticed across-the-board double-digit proportion declines.
The Federal Reserve’s choice—whereas assembly expectations for a 25-basis-point discount—got here with a notable shift within the projected price trajectory for subsequent yr. Reasonably than the beforehand communicated 4 cuts, the central financial institution now anticipates solely two, signaling a extra cautious stance. This recalibration of future financial coverage despatched ripples by your complete threat asset spectrum, prompting the S&P 500 to say no 3% and the Russell 2000 Small Cap Index to drop 4.4%.
Is The Crypto Bull Run Over?
Throughout the crypto sector, the speedy aftermath was pronounced. Matt Hougan, Chief Funding Officer at Bitwise Asset Administration, addressed the market situations this morning by way of X, writing: “The big catalyst today was the Fed announcement […] The Fed cut rates by 25 basis points as expected, but lowered expectations for next year from 4 cuts to 2 cuts. Higher rates are bad for risk assets, and the Fed’s announcement caused a sharp pullback in all risk assets.”
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In response to Hougan, Bitcoin’s worth motion mirrored heightened sensitivity to shifting financial situations. He famous that Bitcoin worth drop was exaggerated by leveraged positions being liquidated. “$600 million of leveraged long positions were blown out in today’s market, exacerbating the pullback.”
Regardless of the steep correction, Hougan argued that the broader outlook stays constructive: “Crypto now has internal momentum, and nothing about today’s announcement interrupts the mega-trends: The pro-crypto reversal in Washington policy, rising institutional adoption and ETF flows, Bitcoin purchases by governments and corporations, and major tech breakthroughs in the programmable blockchain space.”
He pointed to technical indicators as a supporting issue for his thesis: “My favorite momentum gauge is still positive: Bitcoin’s 10-day exponential moving average ($102k) is still above its 20-day exponential moving average ($99k).”
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Hougan concluded his thread by sustaining that the shift in Fed expectations wouldn’t derail the longer-term bull run, stating: “Crypto’s in a multi-year bull market. 50bps of projected rate cuts won’t change that.”
Different market observers provided related interpretations of the Fed’s communication technique. Warren Pies, Founding father of 3Fourteen Analysis, commented by way of X: “By upping inflation forecast, lowering UE rate, and keeping cuts in place, the Fed has actually opened the path to more than 2 cuts in 2025 as data ‘surprises’ to the dovish side.”
Famend macro analysts echoed this sentiment. Crypto analyst and podcaster Fejau (@fejau_inc) described the central financial institution’s strategy as a method designed to information market expectations: “Fed forced itself into cutting this week so is using a hawkish 2025 FFR dot plot forecast to talk down long bond yields despite cutting today […] Welcome to macro psyop warfare. Smoke and mirrors baby.”
He characterised the dot plots as a device for psychological affect moderately than a strict roadmap: “It’s important to view the dot plots not as a future forecast of events, but as a psychological tool […] The Fed has bought themselves time to allow further data to come out before they actually make a move […] Can almost guarantee you 2025 will not occur as is forecasted in their dots.”
Andreas Steno Larsen, CIO of Steno World Macro Fund and CEO at Steno Analysis, provided the same evaluation: “By hawking up all forecasts a lot, the Fed lowers the bar materially for cuts next year. It is a wise move, if you want to cut further, but do not want to precommit.”
At press time, Bitcoin traded at $101,766.
Featured picture created with DALL.E, chart from TradingView.com
