The price of Bitcoin fell below the $100,000 mark following the Federal Reserve’s announcement of a more cautious approach to future interest rate reductions, impacting speculative investments.
Bitcoin, the leading cryptocurrency, dropped as much as 4% to $96,789 on Thursday in New York, a significant retreat from its record high set just days prior. This decline was mirrored across the broader cryptocurrency market, with Ether experiencing a 5% drop and Dogecoin, a popular meme-based cryptocurrency, plummeting by 12%. These more volatile altcoins often experience amplified price swings compared to Bitcoin.
The Federal Reserve recently implemented its third consecutive interest rate cut but signaled a reduced number of anticipated reductions in 2025. Federal Reserve Chair Jerome Powell emphasized the need for further progress in curbing inflation before considering additional monetary easing. Higher interest rates generally diminish the attractiveness of riskier assets, including cryptocurrencies.
Market analysts suggest the outcome of the Fed meeting was largely predictable given recent economic data. Tony Sycamore, Market Analyst at IG Australia Pty, noted that the meeting served as a catalyst to correct some speculative excess that had flowed into risk assets, such as stocks and Bitcoin, in the aftermath of the US election.
The interconnectedness of global economic indicators and the cryptocurrency market explains why fewer anticipated rate cuts can influence digital asset prices. Jake Werrett, General Counsel at dYdX Trading, highlighted Bitcoin’s perception as a reserve currency by many investors. Lower interest rates typically lead to increased cash circulation, potentially higher inflation, and a stronger incentive to invest in store-of-value assets like Bitcoin.
Since the US election on November 5th, Bitcoin has surged over 45%, fueled in part by then President-elect Donald Trump’s pro-crypto stance and proposals for deregulation. However, this positive momentum has been tempered by concerns about market overextension and the absence of traditional valuation metrics. Furthermore, the outgoing Biden administration had implemented stricter regulations on the crypto industry following the market downturn of 2022, which exposed vulnerabilities and fraudulent activities.
Despite the post-Fed dip, some analysts remain optimistic about Bitcoin’s long-term prospects. Paul Veradittakit, a Managing Partner at Pantera Capital, believes the fundamental outlook for Bitcoin remains positive, even if some traders opted to take profits after the Fed announcement.
Following the Fed’s announcement, there were reports of increased demand for options to hedge against potential Bitcoin declines. While a short-term retreat to the low $90,000s is possible, according to Zann Kwan, Chief Investment Officer at the Revo Digital Family Office, the long-term trajectory of Bitcoin remains a subject of ongoing debate and analysis within the investment community. The interplay between macroeconomic factors, regulatory developments, and investor sentiment will continue to shape the future of this nascent asset class.
