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The cryptocurrency market as a whole suffered a marked decline following yesterday’s Federal Open Market Committee (FOMC) meeting, held on December 18th. After cutting rates by 25 basis points as expected, the Federal Reserve also signaled fewer cuts in 2025 than previously expected.
In response, the price of Bitcoin fell by more than 5%, dropping below the $100,000 mark before showing slight signs of recovery. Altcoins recorded generalized double-digit percentage drops.
The Federal Reserve’s decision, while meeting expectations of a 25 basis point reduction, came with a notable change in the expected trajectory of rates for next year. Instead of the four cuts previously communicated, the central bank now plans only two, signaling a more cautious attitude. This recalibration of future monetary policy impacted the entire spectrum of risky assets, pushing the S&P 500 Index down 3% and the Russell 2000 Small Cap Index down 4.4%.
Has the cryptocurrency bull been overwhelmed?
In the cryptocurrency industry, the immediate consequences have been pronounced. Matt Hougan, Chief Investment Officer at Bitwise Asset Management, addressed market conditions via X this morning, 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 to 2 cuts. Higher rates are bad for risky assets and the Fed’s announcement has caused a sharp pullback in all risky assets.”
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According to Hougan, Bitcoin’s price action reflects increased sensitivity to changing monetary conditions. He noted that the decline in Bitcoin’s price was exaggerated by the liquidation of leveraged positions. “$600 million of leveraged long positions went up in smoke in today’s 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 mega-trends: the pro-cryptocurrency reversal in Washington politics, l Increased institutional adoption and flows of ETFs, purchases of Bitcoin by governments and corporations, and major technological breakthroughs in the programmable blockchain space.
He pointed to technical indicators as a factor supporting his thesis: “My favorite momentum indicator is still positive: Bitcoin’s ($102,000) 10-day EMA is still above its 20-day EMA ( $99,000).”
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Hougan concluded his thread by arguing that the change in Fed expectations would not derail the long-term bull run, stating: “Cryptocurrencies are in a multi-year bull market. 50 basis points of expected rate cuts will not change the situation.”
Other market observers have offered similar interpretations of the Fed’s communications strategy. Warren Pies, founder of 3Fourteen Research, commented via X: “By raising inflation forecasts, lowering the EU rate and keeping cuts in place, the Fed has effectively paved the way for more than 2 cuts in 2025 as data “surprises” the dove side.”
Famous macroeconomic analysts have echoed this sentiment. Crypto analyst and podcaster Fejau (@fejau_inc) described the central bank’s approach as a strategy designed to drive market expectations: “The Fed forced itself to cut this week, so it’s using a hawkish FFR dot plot forecast for 2025 to lower long-term bond yields despite today’s cut.” […] Welcome to macropsychological warfare. Smoke and mirrors, darling.
He characterized dot plots as a tool of psychological influence rather than a rigorous roadmap: “It is important to see dot plots not as a future prediction of events, but as a psychological tool […] The Fed bought time to allow more data to be released before actually making a move […] I can almost guarantee you that 2025 will not happen as predicted in their points.”
Andreas Steno Larsen, CIO of Steno Global Macro Fund and CEO of Steno Research, offered a similar assessment: “By distorting all forecasts upward, the Fed substantially lowers the bar for cuts next year. It’s a wise move if you want to cut further, but don’t want to commit upfront.”
At the time of writing, Bitcoin was trading at $101,766.
Featured image created with DALL.E, chart from TradingView.com