Author: Deng Tong, Golden Finance

At 3 AM, the Federal Reserve announced its interest rate decision, cutting rates by 25 basis points. Subsequently, Federal Reserve Chairman Jerome Powell held a monetary policy press conference at 3:30 AM.

Although altcoins had rebounded after the previous three FOMC meetings, following the Federal Reserve's official announcement of a 25 basis point rate cut, the market experienced a "Black Thursday," with Bitcoin dropping below $100,000 and altcoins plummeting by 20% across the board.

What caused "Black Thursday"? What is the future trajectory of Federal Reserve policy? How do industry insiders view the current market situation?

1. Risk Aversion Mode After the Peak

According to Coingecko data, the price of BTC reached a historical high of $108,135 on December 17.

Subsequently, on December 18, Bitcoin's price erased about 5% of its gains, falling to $103,765. The decline in Bitcoin triggered panic selling among crypto investors, leading to a comprehensive downturn in the cryptocurrency market.

Massive liquidations in the derivatives market accompanied the slump in the crypto market. $78.09 million in BTC was liquidated, and $55.65 million in ETH was liquidated, resulting in a bloodbath in the crypto market.

Total liquidation in the cryptocurrency market. Source: CoinGlass

The dominance of long position liquidations indicates that the crypto market was over-leveraged on the bullish side, primarily due to profit-taking and the initiation of risk aversion mode before today's Federal Reserve rate cut decision.

Before this FOMC meeting, sellers had already dominated the market, and the selling pressure reflected typical risk-averse sentiment before the event, cooling BTC.

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

U.S. stock market performance over 24 hours. Source: Financial Visualizations

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

2. A 25 Basis Point Rate Cut, but Powell Makes 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 the third consecutive rate cut, in line with expectations. Over eight decisions this year, the Federal Reserve has cumulatively cut rates by 100 basis points, including one 50 basis point cut and two 25 basis point cuts, while maintaining rates unchanged on five occasions.

According to the median of the Federal Reserve's December dot plot, the Fed expects to cut rates twice in 2025, each by 25 basis points, down from the September expectation of four cuts, each by 25 basis points; the Fed also expects to cut rates twice in 2026, each by 25 basis points, consistent with the September forecast. The median expected 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 cut rates twice in 2025 is undoubtedly a hawkish statement for the market. Additionally, the Federal Reserve Committee raised its inflation expectations for 2025 from 2.1% to 2.5%.

Some analysts believe this is due to potential policy adjustments under Trump's administration, such as increasing tariffs on multiple countries, deporting millions of undocumented workers, and expanding the fiscal deficit. Powell emphasized at the press conference that the Federal Reserve's policy adjustment is a signal indicating that the central bank is prepared to adjust its policies based on the needs of the U.S. 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 U.S. interest rate strategy at TD Securities, stated: The Federal Reserve has signaled that it will not be as dovish as in the past, leaning towards fewer rate cuts next year. I believe this is a signal that the market will continue to price in less than two rate cuts; if the data is strong enough, it may trend towards zero rate cuts. If the Federal Reserve does not see inflation decline to a sufficient level, they are unwilling to continue cutting rates.

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

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

Influenced by the Federal Reserve's hawkish remarks, U.S. interest rate futures are pricing in a rate cut of about 49 basis points by the Federal Reserve in 2025, close to the 50 basis points predicted by the Fed's dot plot, while the market was pricing in a 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 post-FOMC press conference: "We are not allowed to hold Bitcoin." Regarding the legal issues of holding Bitcoin, Powell stated, "This is something for Congress 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 predictions for Bitcoin prices, cryptocurrency analyst Skew stated that BTC's decline "cleared positions" in both directions, as long positions were stopped out and "shorts took profits."

Chris Burniske, a partner at Placeholder, posted on X: "If you feel frustrated that you didn't sell before the market pullback after the Federal Reserve FOMC meeting, understand that you actually don't have much of an edge in predicting market reactions. Take this experience as an opportunity to slow down. Don't overtrade. In the long run, as long as you are patient, you will be fine."

Andre Dragosch, Head of Research at Bitwise Europe, pointed out: "I think the biggest problem for the Federal Reserve right now is that despite the rate cuts, the financial environment is still tightening. Since September, long-term bond yields and mortgage rates have been rising, and the dollar has appreciated, which also means a tightening financial environment. The continued appreciation of the dollar also poses macro risks for Bitcoin, as the dollar's strength is associated with a contraction in global money supply, which is often detrimental to Bitcoin and other crypto assets. In fact, the Federal Reserve's net liquidity continues to decrease. In my view, the tightening of liquidity and the strengthening of the dollar are also the biggest risks facing BTC… On the other hand, the on-chain factors for BTC remain very favorable, especially the continued decline in exchange balances, which supports the hypothesis 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 $120 million, with approximately $109 million in long liquidations and about $11.08 million in short liquidations.

As of the time of writing, the price of BTC has fallen below $100,000, standing at $99,422.12, with a 24-hour decline of 5.8%.

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

Sources: CoinTelegraph, CoinDesk, X, Coingecko, Jin10 Data, Golden Finance

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