Bitcoin dropped below US$100,000 as part of a broader retreat in speculative investments after the Federal Reserve signalled greater caution regarding future interest rate reductions. The digital asset declined by approximately 1%, reaching US$99,800 as of 10 am Thursday, following a 5.1% drop on Wednesday — its most significant retreat since September. Other tokens such as Ether, XRP, and Dogecoin also faced difficulties.

The pullback came after the Federal Reserve's recent meeting, where officials cut borrowing costs for the third consecutive time but reduced the number of rate cuts they expect in 2025. Fed Chair Jerome Powell stated that more progress on inflation was needed before further reductions could be considered.

Market analyst Tony Sycamore from IG Australia noted that the Fed's decision, though not surprising to investors following recent US inflation and activity data, acted as a catalyst to clear out speculative excesses. These had flowed into risk assets, including Bitcoin and stocks, after the US election, he explained.

The Fed's stance resulted in a stronger dollar, which put pressure on global stocks and bonds. The risk of a partial US government shutdown, heightened by a dispute over a funding bill, further weighed on investor sentiment, with US equity futures fluctuating on Thursday.

Bitcoin had risen 50% since the Nov 5 election and hit an all-time high of US$108,316 earlier this week. This surge was fuelled by President-elect Donald Trump's promise to loosen regulatory restrictions on crypto in the US. Trump has also supported the idea of creating a national strategic stockpile of Bitcoin.

Despite some traders expressing disappointment over the Fed's cautious stance and taking profits, Pantera Capital's managing partner, Paul Veradittakit, remained optimistic, stating that "all signs point to a good floor and outlook for Bitcoin."

Trump's support for crypto has overshadowed concerns about the momentum's sustainability and the lack of traditional valuation measures. Meanwhile, the outgoing administration of President Joe Biden had introduced tighter regulations following a significant market rout in 2022 that revealed risky practices and fraud within the crypto industry.

Bloomberg