Deng Tong, Golden Finance

At 3 a.m., the Federal Reserve announced the interest rate decision and economic outlook summary, followed by a monetary policy press conference held by Chairman Powell at 3:30 a.m. Although altcoins had previously rebounded after the last three FOMC meetings, this time, after the Federal Reserve officially announced a 25 basis point rate cut, the market continued to decline.

What has caused the current decline in the cryptocurrency market? What is the future trend of the Federal Reserve's policies? How do industry insiders view the current market situation?

1. Risk-averse mode after the peak.

According to Coingecko data, the price of BTC reached an all-time high of $108,135 on December 17.

Subsequently, on December 18, the price of Bitcoin temporarily erased about 5% of its gains, falling to $103,765. The decline in Bitcoin triggered panic selling among crypto investors, leading to a widespread drop in cryptocurrencies.

The large-scale liquidation in the derivatives market is accompanying the slump in the crypto market. $78.09 million of Bitcoin was liquidated, and $55.65 million of Ethereum was liquidated, making the crypto market a scene of bloodshed.

Total liquidation of Cryptos. Source: CoinGlass.

The dominance of long liquidations indicates that the crypto market is over-leveraged on the bullish side, mainly due to profit-taking and risk-off mode before the Fed's interest rate cut decision today.

Before this FOMC meeting, sellers had already dominated the market, and the selling pressure reflected a typical risk-off sentiment before the event, with Bitcoin cooling down.

Additionally, the continued adjustment in the crypto market also reflects the weakness of the USA stock market. On December 17, the S&P 500 index fell 0.4%, closing at 6050.61 points, the Nasdaq Composite Index dropped 64 points. The Dow Jones Industrial Average declined for the ninth consecutive trading day, marking the longest losing streak since 1978, closing down 0.61% on December 17 at 43,339 points.

USA stock market performance over the past 24 hours. Source: Financial Visualizations.

Before the FOMC meeting, market participants had already focused their attention on the Federal Reserve's interest rate cut decision. The last interest rate resolution of the Federal Reserve for 2024 is a complex and highly volatile event.

Second, an interest rate cut of 25 basis points, but Powell made hawkish remarks.

This morning, the Federal Reserve concluded its annual interest rate decision for 2024, deciding to lower the benchmark interest rate by 25 basis points to a range of 4.25%-4.50%, marking a third consecutive rate cut in line with expectations. Over eight decisions this year, the Federal Reserve has cumulatively cut interest rates by 100 basis points, consisting of one 50 basis point cut, two 25 basis point cuts, and maintaining rates unchanged in the other five instances.

According to the median shown in the Federal Reserve's December dot plot, the Federal Reserve expects to cut rates twice in 2025, each by 25 basis points, with the September expectation being four cuts of 25 basis points each; the Federal Reserve also anticipates two more cuts in 2026, each by 25 basis points, consistent with the September expectation. The median expectation for the federal funds rate at the end of 2025 is 3.9%, up from the previous expectation of 3.4% in September.

Powell's announcement that the Federal Reserve will only lower rates twice more in 2025 is undoubtedly hawkish for the market; besides, the Federal Reserve Committee also raised the 2025 inflation expectation from 2.1% to 2.5%.

Some analysts believe this is due to Trump's presidency bringing certain policy adjustments, such as increasing tariffs on multiple countries, expelling millions of undocumented workers, and expanding the fiscal deficit. Powell emphasized at the press conference that the Federal Reserve's policy adjustments signal the central bank's readiness to adapt policy according to the needs of the USA economy.

Powell also stated that geopolitical turmoil remains a risk. There is significant uncertainty in the economic forecasts for the next three years.

In response, Gennadiy Goldberg, head of US Interest Rates strategy at TD Securities, said: The Federal Reserve has signaled that they will not be as dovish as in the past, and they tend to have fewer rate cuts next year. I think this is a signal that the market will continue to price in less than two rate cuts, and if the data is strong enough, it may move towards zero rate cuts. If the Federal Reserve does not see inflation drop to a sufficient level, they are unwilling to continue cutting rates.

"Federal Reserve mouthpiece" Nick Timiraos pointed out: The addition of the phrase "magnitude and timing" in the Federal Reserve's policy statement suggests a slowdown in the pace of rate cuts, to modify potential adjustments.

John Haar, Managing Director of Swan Bitcoin, stated: The eventual reduction of interest rates and the indication of fewer rate cuts next year suggest that future interest rates will be relatively hawkish.

Affected by the Federal Reserve's hawkish remarks, US interest rate futures are pricing in a rate cut of about 49 basis points by 2025, close to the 50 basis points predicted by the Fed's dot plot, while the market was pricing in a rate cut of 75 basis points before the rate decision was announced.

Not only regarding rate cut expectations, but also on whether Trump will establish a Bitcoin reserve, Powell clearly stated: The Federal Reserve has no intention of holding Bitcoin. Powell said at the press conference following the FOMC meeting: "We are not allowed to hold Bitcoin." Regarding the legal issues of holding Bitcoin, Powell stated, "This is something Congress needs to consider, but we have no intention of seeking to change the law."

3. How do industry insiders view the current crypto market situation?

Regarding short-term Bitcoin price predictions, cryptocurrency Analyst Skew stated that the decline in BTC has "cleared positions" in both directions, as bulls were stopped out and "bears took profits."

Partner Chris Burniske posted on X, stating: "If you feel frustrated that you couldn't Sell before the market pullback following the Federal Reserve's FOMC meeting, understand that you really don't have much of an advantage in predicting market reactions. Treat this experience as an opportunity to slow down. Don't overtrade. In the long run, as long as you are patient, you'll be fine."

Andre Dragosch, Research Director for Bitwise Europe, pointed out: "I think the Federal Reserve's biggest trouble right now is that, despite the Fed's interest rate cuts, the financial environment is still tightening. Since September, long-term Bond yields and mortgage rates have been rising, and the dollar is appreciating, which also means a tightening financial environment. The continuous appreciation of the dollar also poses macro risks to Bitcoin, as the dollar's rise is linked to the contraction of the Global money supply, which is often detrimental to Bitcoin and other Cryptos. In fact, the Federal Reserve's net liquidity is continuously decreasing. From my perspective, the tightening liquidity and the strong dollar are also the biggest risks facing BTC... On the other hand, on-chain factors for BTC remain very favorable, especially the ongoing decline in Exchange balances, which supports the assumption that the BTC supply gap continues to widen."

According to Coinglass data, in the past 24 hours, the total liquidation amount across the network reached 0.12 billion dollars, with approximately 0.109 billion dollars in long position liquidations and about 11.0841 million dollars in short position liquidations.

As of the time of this report, the price of BTC has fallen below 0.1 million dollars, currently at 99,422.12 dollars, with a 24-hour decline of 5.8%.

The price of Ethereum has fallen below the 3,600 dollar mark, currently at 3,594.01 dollars, with a 24-hour decline of 7.3%.

Data sources: CoinTelegraph, CoinDesk, X, Coingecko, Golden Ten Data, Golden Finance.