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The broader crypto market faced a sharp decline following yesterday’s meeting of the Federal Open Market Committee (FOMC), held on December 18. After the US Federal Reserve delivered a 25-point cut as expected, it also indicated 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 little signs of recovery. Altcoins saw double-digit percentage declines across the board.
The Federal Reserve’s decision—while meeting expectations for a 25 basis point rate cut—came with a significant change in the rate path suggested for next year. Instead of the four reductions previously communicated, the central bank now expects only two, reflecting a more cautious stance. These future monetary policy adjustments sent volatility across the risk asset spectrum, sending the S&P 500 down 3% and the Russell 2000 Small Cap Index down 4.4%.
Is The Crypto Bull Over?
Within the crypto sector, the immediate effect was pronounced. Matt Hougan, Chief Investment Officer at Bitwise Asset Management, addressed market conditions this morning via X, writing: “The big thing 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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According to Hougan, the price action of Bitcoin showed a high sensitivity to changes in financial conditions. He noted that the drop in Bitcoin’s price was exaggerated due to high positions being liquidated. “$600 million of leveraged long positions were blown in today’s market, making it difficult to pull back.”
Despite the steep correction, Hougan asserted that the broader outlook is still building: “Crypto now has internal momentum, and nothing about today’s announcement disrupts the larger trends: The pro-crypto shift in Washington policy, the rise in institutional acquisitions and ETF flows, the buying of -Bitcoin. by governments and corporations, and major technological breakthroughs in the blockchain ecosystem.”
He pointed to technical indicators as supporting his thesis: “My favorite momentum indicator is still right: Bitcoin’s 10-day moving average ($102k) is still above its 20-day moving average ($99k).”
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Hougan concluded his thread by maintaining that the Fed’s change in expectations will not derail the long-term bull run, saying: “Crypto’s in a multi-year bull market. A 50bps rate cut won’t change that.”
Other market observers offered similar interpretations of the Fed’s communication strategy. Warren Pies, Founder of 3Fourteen Research, commented on X: “By raising the inflation forecast, lowering the UE rate, and keeping the cuts in place, the Fed has actually paved the way for more than 2 cuts in 2025 as the data ‘strikes’ ‘ to many people. long.”
Famous great commentators have expressed this. Crypto analyst and podcaster Fejau (@fejau_inc) described the central bank’s approach as a strategy designed to steer market expectations: “The Fed forced itself to decide this week so it uses a hawkish 2025 FFR dot plage forecast to talk about long-term bond yields despite of reduction today. […] Welcome to macro psyop warfare. Take your glasses with you, my child.”
He described dot plots as a tool of psychological influence rather than a strict method: “It is important to look at dot plots not as a prediction of future events, but as a psychological tool. […] The Fed bought itself time to let more information come out before it acted […] I can almost guarantee you that 2025 will not happen as predicted on their dot. “
Andreas Steno Larsen, CIO of the Steno Global Macro Fund and CEO at Steno Research, gave a similar assessment: “By making all the forecasts too much, the Fed significantly lowered the rate to cut next year.” It’s a smart move, if you want to cut back a lot, but don’t want to commit. “
At press time, Bitcoin traded at $101,766.
The featured image was created with DALL.E, a chart from TradingView.com
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