The cryptocurrency market experienced a significant downturn following the Federal Reserve’s announcement of a 25 basis point interest rate cut on December 18, 2024. Major cryptocurrencies like Bitcoin, XRP, and Dogecoin saw sharp declines in value after the announcement, reflecting a broader market reaction to the Fed’s cautious outlook on future rate reductions.
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Bitcoin, which had reached a new all-time high above $108,000 earlier in the week, plummeted to $99,196, representing a nearly 6% drop within 24 hours. XRP suffered a more substantial loss, falling by 13%, while Dogecoin experienced a 12% decline, reaching a one-month low of $0.348. The Federal Reserve’s decision to lower the benchmark interest rate to a range of 4.25%-4.50% was accompanied by comments from Fed Chairman Jerome Powell that signaled a more conservative approach to future rate cuts.
Powell indicated that rate reductions in 2025 would likely be smaller than anticipated due to higher inflation expectations and lingering inflationary pressures. His remarks, available in a video interview, injected caution into financial markets, triggering immediate price drops in Bitcoin and other cryptocurrencies. The market response underscored the growing interconnectedness between digital assets and traditional financial indicators.
Crypto Liquidations and Broader Market Impact
The Federal Reserve’s announcement led to the liquidation of over $690 million in cryptocurrency derivatives positions, according to data from Coinglass. Bitcoin long positions constituted a significant portion of these liquidations. The ripple effect extended across the broader cryptocurrency market, with altcoins like Ethereum, Cardano, and Litecoin each experiencing losses of approximately 10%.
Powell’s statement included the Federal Reserve’s projection that the interest rate would decline to 3.9% by the end of 2025, a lower figure than previously forecast. He attributed the slower pace of rate cuts to a stronger-than-expected economy and persistent inflationary pressures. The U.S. stock market also reacted negatively, with declines observed in both the S&P 500 and Nasdaq 100. Cryptocurrency-related stocks, including Coinbase and MicroStrategy, also recorded notable losses. This widespread negative reaction across various asset classes further emphasizes the sensitivity of markets to the Federal Reserve’s monetary policy decisions.
Bitcoin’s Sensitivity to Macroeconomic Trends and Powell’s Perspective
Bitcoin’s rapid response to macroeconomic news highlighted its increasing susceptibility to traditional financial indicators, blurring the lines between decentralized finance and global economic trends. While lower interest rates typically favor risk assets like Bitcoin, the Fed’s cautious stance prompted a sell-off as traders quickly liquidated their positions. This reaction suggests that Bitcoin’s price is influenced not only by internal factors within the crypto market but also by broader economic conditions and investor sentiment.
Despite the market downturn, Powell reiterated in an interview that Bitcoin does not pose a threat to the U.S. dollar, positioning it as a competitor to gold rather than a replacement for fiat currency. He also addressed the possibility of the U.S. establishing a Bitcoin reserve, clarifying that the Federal Reserve is currently prohibited from owning Bitcoin and is not seeking a legislative change to enable such ownership. This commentary provides insight into the Federal Reserve’s current understanding and stance on Bitcoin’s role in the global financial system.
Widespread Decline Across the Cryptocurrency Market
The broader cryptocurrency market mirrored Bitcoin’s decline, with major assets experiencing substantial losses. Ethereum, Solana, and Dogecoin were among the most affected, as investor confidence waned in response to Powell’s comments and the anticipated slower trajectory of rate cuts. The widespread nature of these declines reinforces the influence of macroeconomic factors and investor sentiment on the cryptocurrency market as a whole. This event underscores the importance of monitoring not only internal market dynamics but also broader economic trends and policy decisions when assessing the cryptocurrency landscape.
