This article is also available in Spanish.
The broader crypto market saw a pronounced slowdown following yesterday’s Federal Open Market Committee (FOMC) meeting, held on December 18. After the US Federal Reserve delivered a 25 basis point rate cut as anticipated, it also signaled fewer cuts in 2025 than before. expected.
In response, the price of Bitcoin fell by more than 5%, falling below the $100,000 mark before showing slight signs of recovery. Altcoins saw overall double-digit percentage drops.
The Federal Reserve’s decision, while meeting expectations of a 25 basis point reduction, was accompanied by a notable change in the projected path of rates for next year. Instead of the four cuts previously reported, the central bank now foresees only two, indicating a more cautious stance. This recalibration of future monetary policy had repercussions across the risk asset spectrum, causing the S&P 500 to fall 3% and the Russell 2000 Small Cap Index to fall 4.4%.
Is the Crypto Bull run over?
Within the crypto sector, the immediate consequences were pronounced. Matt Hougan, Chief Investment Officer at Bitwise Asset Management, addressed market conditions this morning via X, writing: “The big catalyst today was the Federal Reserve announcement […] The Federal Reserve 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 across all risk assets.”
Related reading
According to Hougan, Bitcoin’s price action reflected increased sensitivity to changing monetary conditions. He noted that the Bitcoin price drop was exaggerated by the liquidation of leveraged positions. “$600 million in leveraged long positions disappeared in the current market, exacerbating the pullback.”
Despite the sharp correction, Hougan argued that the broader outlook remains constructive: “Cryptocurrencies now have domestic momentum, and nothing in today’s announcement disrupts the megatrends: The pro-crypto reversal in Washington politics , the growing institutional adoption and flows of ETFs, purchases of Bitcoin by governments and corporations, and major technological advances in the programmable blockchain space.
He pointed to technical indicators as a supporting factor for his thesis: “My favorite momentum indicator remains positive: Bitcoin’s 10-day exponential moving average ($102k) is still above its 20-day exponential moving average ($99). thousand)”.
Related reading
Hougan concluded his thread by arguing that the change in Fed expectations will not derail the long-term bull run, stating: “Cryptocurrencies are in a multi-year bull market. “50 basis points of projected rate cuts won’t change that.”
Other market watchers offered similar interpretations of the Federal Reserve’s communications strategy. Warren Pies, founder of 3Fourteen Research, commented via
Renowned macroeconomic analysts echoed this sentiment. Crypto analyst and podcast host Fejau (@fejau_inc) described the central bank’s approach as a strategy designed to guide market expectations: “The Fed forced itself into cuts this week, so it’s using a dot plot forecast.” Hardline FFR for 2025 to lower long-term bond yields despite today’s cuts. […] Welcome to the macro war of psychological operations. “Smoke and mirrors, baby.”
He called dot plots a tool for psychological influence rather than a strict road map: “It is important to view dot plots not as a future forecast of events, but as a psychological tool. […] The Federal Reserve has bought itself time to allow more data to come out before taking any action. […] “I can almost guarantee you that 2025 will not happen as predicted in your points.”
Andreas Steno Larsen, CIO of Steno Global Macro Fund and CEO of Steno Research, offered a similar assessment: “By greatly exaggerating all forecasts, the Federal Reserve substantially lowers the bar for cuts next year. It’s a smart move if you want to cut more, but don’t want to pre-commit.”
At press time, Bitcoin was trading at $101,766.
Featured image created with DALL.E, chart from TradingView.com
