The crypto market witnessed a significant decline after the Federal Open Market Committee (FOMC) meeting on December 18. Despite the United States Federal Reserve implementing a 25-basis-point rate cut, as anticipated, it surprised many by indicating fewer rate cuts in 2025 than initially expected.
This announcement had a notable impact, causing the price of Bitcoin to drop by over 5%, falling below the $100,000 threshold before starting a modest recovery. Meanwhile, altcoins experienced substantial double-digit percentage losses across the board. The Federal Reserve’s decision, although meeting expectations for the rate reduction, signaled a cautious stance with only two rate cuts anticipated next year, down from the previously communicated four. This shift in monetary policy expectations reverberated through various risk assets, resulting in a 3% decline in the S&P 500 and a 4.4% drop in the Russell 2000 Small Cap Index.
Evaluating the End of the Crypto Bull Run
The immediate effects in the crypto sector were noteworthy. Matt Hougan, Chief Investment Officer at Bitwise Asset Management, commented on the market dynamics in a statement shared on X. He remarked, “The primary catalyst today was the Fed’s announcement. Although the Fed cut rates by 25 basis points as expected, it reduced the anticipated rate cuts for next year from four to two. Higher rates generally pose challenges for risk assets, and the Fed’s decision led to a sharp decline in all risk assets.”
Bitcoin’s Sensitivity to Monetary Shifts
Hougan highlighted Bitcoin’s heightened sensitivity to changes in monetary conditions, noting that the decline in Bitcoin’s price was exacerbated by the liquidation of leveraged positions. “Approximately $600 million worth of leveraged long positions were liquidated in today’s market, intensifying the pullback,” he explained.
Despite the sharp correction, Hougan maintained an optimistic long-term outlook: “The momentum within the crypto sector is strong, and today’s announcement does not disrupt the major trends: the pro-crypto shift in Washington, increased institutional adoption and ETF inflows, purchases of Bitcoin by governments and corporations, and significant technological advancements in programmable blockchain technology.”
Technical Indicators Supporting a Positive Outlook
Hougan pointed to technical indicators as supportive of his thesis: “My preferred momentum indicator remains positive. Bitcoin’s 10-day exponential moving average ($102k) is still above its 20-day exponential moving average ($99k).”
Long-Term Bull Run Unaffected
Hougan concluded by asserting that the Fed’s adjusted expectations would not derail the ongoing bull market in the crypto space: “We are in a multi-year bull market for crypto. The projected 50 basis points of rate cuts won’t alter that trajectory.”
Other market analysts have offered similar interpretations of the Federal Reserve’s communication strategy. Warren Pies, Founder of 3Fourteen Research, shared his perspective on X: “By increasing the inflation forecast, lowering the unemployment rate, and maintaining the cuts, the Fed has actually opened the door to potentially more than two cuts in 2025, assuming data trends favor a dovish approach.”
Strategic Guidance from the Federal Reserve
Renowned macro analysts echoed this view. Crypto analyst and podcaster Fejau described the central bank’s strategy as one aimed at managing market expectations: “The Fed found itself compelled to cut rates this week and is using a hawkish 2025 FFR dot plot forecast to temper long bond yields despite today’s cut. Welcome to the world of macroeconomic psychological operations—it’s all smoke and mirrors.”
Fejau emphasized the psychological nature of the dot plots, stating, “It’s crucial to perceive the dot plots not as a precise forecast but as a psychological tool. The Fed has effectively bought itself time to evaluate further data before making any actual moves. It is highly likely that the 2025 scenario outlined in the dot plots will not materialize as predicted.”
Insightful Assessment by Andreas Steno Larsen
Andreas Steno Larsen, CIO of Steno Global Macro Fund and CEO at Steno Research, shared a similar assessment: “By aggressively revising all forecasts, the Fed has lowered the threshold for future cuts. This is a strategic move if the intention is to cut further without precommitting.”
At the time of writing, Bitcoin was trading at $101,766.
