The Fed announced a rate cut, causing both the US stock market and crypto market to plummet.

On Wednesday afternoon local time, the Federal Reserve announced a 25 basis point cut in the benchmark policy rate, but also hinted that the number of rate cuts in 2025 may be fewer than previously expected. This news triggered market turmoil, causing both US stocks and the cryptocurrency market to plummet together.

According to the latest quarterly economic forecast released by the Federal Reserve, there may be only two rate cuts in 2025, much lower than the four forecasted in September, and also lower than the market's previous expectation of three times. This indicates that the Federal Reserve is adopting a more cautious attitude towards balancing inflation and economic growth. In addition, the Federal Reserve has revised its forecasts for personal consumption expenditure (PCE) and core PCE inflation in 2024, increasing from 2.1% and 2.2% in September to 2.5% respectively.

Federal Reserve Chairman Powell described this shift as a 'new phase' in monetary policy, noting that after an expected 100 basis points rate cut in 2024, the rate level is closer to a neutral position.

Impacted by the signal of the Federal Reserve's policy, the three major US stock indexes all fell. As of Wednesday's close, the Dow Jones Industrial Average fell by 2.59%, marking the longest 50-year consecutive decline in 10 days; the S&P 500 Index fell by 2.95%; and the Nasdaq Index plummeted by 3.56%. The US Dollar Index soared to a two-year high, while the Chicago Options Exchange Volatility Index (VIX), reflecting market panic, surged by 58% to reach 25 points, indicating a significant increase in investors' uncertainty about future interest rate policies.

Following the release of the Federal Reserve statement, the price of Bitcoin quickly plummeted from $104,000 to $100,256, a nearly 5% drop within 24 hours. Other cryptocurrencies fared even worse, with XRP, ADA, and LTC all falling nearly 10%.

This decline is closely related to Federal Reserve Chairman Powell's remarks. During a press conference, in response to a reporter's question about Trump's earlier proposal to establish a 'strategic Bitcoin reserve,' Powell bluntly stated: 'The Federal Reserve cannot hold Bitcoin. The Federal Reserve Act clearly defines the types of assets we can hold, and we have no intention of advocating for a change in the law, which should be decided by Congress.'

Trump has repeatedly mentioned his vision to establish a national Bitcoin reserve. In an interview with CNBC last week, he stated: 'The United States should take a leadership position in the field of cryptocurrencies to prevent other countries from taking the lead.' This view has garnered support from some lawmakers, such as Republican Senator Cynthia Lummis from Wyoming, who is drafting a bill to have the US Treasury purchase 1 million Bitcoins in the next five years.

However, this idea has also faced much criticism. Former New York Fed President Bill Dudley published a comment in Bloomberg last week stating that this strategic reserve could be a 'bad deal' for the United States. An analysis report from Barclays Bank pointed out that funding this plan through new national debt issuances may face strong opposition from the Federal Reserve.

Despite the widespread discussion of "strategic Bitcoin reserves" in the United States, Zach Pandl, research director at Grayscale Research, believes that sovereign wealth funds in Asia and the Middle East are more likely to be the driving force behind Bitcoin development. He pointed out: "Fed Chairman Powell's speech disappointed investors about the possibility of a Bitcoin reserve, but sovereign wealth funds manage highly diversified assets and are more likely to be the first to venture into Bitcoin."

Andre Dragosch, Bitwise's European research director, also analyzed and stated, "Although the Fed lowered interest rates, the financial environment remains tight. The appreciation of the dollar poses a macro risk to Bitcoin because a stronger dollar usually accompanies a contraction in global MMF supply, which is unfavorable to Bitcoin and other crypto assets. In addition, the Fed's net liquidity continues to decrease, further intensifying pressure on Bitcoin."

However, he also mentioned that Bitcoin's on-chain data still performs well. The continued decline in exchange balances indicates that the supply gap may continue to expand, providing support for long-term prices.

From a technical standpoint, Bitcoin needs to find support near $0.1 million in the short term. Cryptocurrency analyst Skew pointed out that the positions of both longs and shorts are fluctuating sharply, with evident long liquidation and short profit-taking situations. If the Bitcoin price can regain stability in the range of $0.1 million to $0.1014 million and form a breakthrough on the daily chart, it may reverse the downward trend.

Analysts from Santiment maintain an optimistic attitude, stating on X (formerly Twitter) platform: "Although Bitcoin has temporarily declined, it remains above $0.1 million, showing milder drops compared to the U.S. stocks. If the price stabilizes in the next 24 to 48 hours, this could be a strong signal."

The policy adjustments by the Federal Reserve are having a profound impact on the global financial and crypto markets. Faced with uncertainty over future interest rates and the strengthening of the dollar, Bitcoin and other crypto assets will continue to face pressure. However, in the long run, the positioning of sovereign funds and changes in market supply and demand may still provide support for Bitcoin. Various market participants will closely monitor further developments.