Introduction
In the early hours of December 19, 2024, the Federal Reserve announced a 25 basis points rate cut, bringing the benchmark interest rate to 4.25%-4.5%. While this move was somewhat in line with market expectations, the Fed’s statement that there may be fewer rate cuts in 2025 than previously expected triggered significant volatility in the cryptocurrency market. Bitcoin (BTC) plummeted in just a few hours, nearly breaking the $100,000 mark, while other major cryptocurrencies like Ethereum (ETH) also experienced dramatic price fluctuations. According to the latest data, the total amount of liquidation in the crypto market in the past 24 hours reached a staggering $702 million, affecting over 250,000 people.
Impact of the Fed’s Interest Rate Decision
The Fed’s latest decision revealed their cautious approach towards the economy and inflation. While the rate cut boosted the market, Chairman Powell emphasized during the press conference that due to inflation falling slower than expected, there may only be two rate cuts in 2025, significantly lower than the market’s previous expectation of three. This policy shift led to a collective decline in the U.S. stock market and the crypto market, with the S&P 500 and Nasdaq indices dropping by 2.95% and 3.56% respectively. Meanwhile, the price of Bitcoin plummeted from a high of $104,800 to around $100,000, with a drop of up to 4.6%.
Cryptocurrency Market Plunge: Bitcoin and Ethereum Hit Hard
The sharp decline in Bitcoin prices was not only a direct response to the Fed’s rate cut decision but also closely related to Powell’s comments after the meeting. When asked by reporters about Trump’s proposal to establish a “strategic reserve of Bitcoin,” Powell stated clearly, “The Federal Reserve is not allowed to hold Bitcoin,” highlighting this as a matter for Congress to consider. This statement sparked concerns in the market about the future of Bitcoin policy, especially given the Trump administration’s support for Bitcoin, causing a sudden shift in market sentiment. Ethereum (ETH) also suffered, with its price dropping from $3,907 to $3,617, a decline of up to 6.8%.
This intense volatility led to a significant increase in liquidation in the crypto market, with Coinglass data showing liquidation amounts reaching $702 million in the past 24 hours, primarily dominated by long positions.
Future Price Trends of Bitcoin (BTC) & Ethereum (ETH) Today
Currency
Price
24H Change
24H Trading Volume
Market Cap
7-Day Price Trend
Bitcoin
$101,202.68
-3.34%
$100.96 billion
$1,998.89 billion
Ethereum
$3,665.61
-4.62%
$53.76 billion
$440.27 billion
The Far-reaching Impact of the Fed’s Rate Cut on the Market
The Fed’s monetary policy changes, especially the reduction in the number of rate cuts in 2025, indicate a more cautious future monetary policy. For the cryptocurrency market, especially high-risk assets like Bitcoin, this implies increased uncertainty. While rate cuts typically stimulate demand for assets like Bitcoin, the Fed’s cautious attitude towards future rate cuts may lead to tighter capital flows, further affecting market liquidity.
Additionally, the appreciation of the US dollar poses macro risks to Bitcoin. With a stronger US dollar, the contraction of global money supply may suppress cryptocurrencies like Bitcoin, increasing market instability. Particularly as the US financial environment tightens, market sentiment volatility intensifies.
Future Trend of Bitcoin: Rebound or Continued Decline?
Despite facing significant downward pressure in the short term, many analysts believe that the current price correction is not the end of the bull market. The cryptocurrency analysis platform Santiment stated that Bitcoin’s support above $100,000 has been relatively strong, and if it can stabilize at this level, a rebound may be possible.
Grayscale Research also pointed out that sovereign wealth funds in Asia and the Middle East may be the driving force behind further price increases in Bitcoin, rather than the US government. Despite the sharp drop in Bitcoin following Powell’s remarks, analysts generally believe that this short-term market reaction does not represent a deterioration in Bitcoin’s long-term prospects. On the contrary, the market continues to be optimistic about Bitcoin’s supply gap and institutional investor interest.
Investor Strategies
For investors, the current market volatility provides an opportunity for short-term entry at lower prices. Despite significant market fluctuations, traders and investors should focus on the long-term trends of Bitcoin and other major cryptocurrencies. Market reactions to policies are often short-term, while the nature and value of decentralized assets like Bitcoin continue to attract more institutional investors.
As Bitcoin’s price falls to around $100,000, the market may find support at this level. Some analysts believe that the market is undergoing a healthy price consolidation phase, and a rebound may occur in the coming days. If Bitcoin can maintain above $100,000 and gradually rise to the $101,400 range, the market may resume its upward trend.
Conclusion
The recent rate decision by the Federal Reserve undoubtedly shook the market, especially for high-risk assets like cryptocurrencies, further intensifying market volatility due to policy uncertainty. However, as the market gradually digests the impact of the rate changes, investor interest in assets like Bitcoin remains strong, with significant uncertainty about future trends. In this process, investors should remain cautious, while focusing on long-term market fundamentals, Bitcoin’s supply-demand dynamics, and institutional investor trends.