The broader crypto market experienced a pronounced downturn following yesterday\u2019s Federal Open Market Committee (FOMC) meeting, held on December 18. After the US Federal Reserve delivered a 25-basis-point rate cut as anticipated, it also signaled fewer cuts in 2025 than previously expected.<\/p>\n
In response, the Bitcoin price fell by more than 5%, dropping below the $100,000 mark before showing slight signs of recovery. Altcoins saw across-the-board double-digit percentage declines.<\/p>\n
The Federal Reserve\u2019s decision\u2014while meeting expectations for a 25-basis-point reduction\u2014came with a notable shift in the projected rate trajectory for next year. Rather than the previously communicated four cuts, the central bank now anticipates only two, signaling a more cautious stance. This recalibration of future monetary policy sent ripples through the entire risk asset spectrum, prompting the S&P 500 to decline 3% and the Russell 2000 Small Cap Index to drop 4.4%.<\/p>\n
Within the crypto sector, the immediate aftermath was pronounced. Matt Hougan, Chief Investment Officer at Bitwise Asset Management, addressed<\/a> the market conditions this morning via X, writing: \u201cThe big catalyst today was the Fed announcement [\u2026] The Fed cut rates by 25 basis points as expected, but lowered expectations for next year from 4 cuts to 2 cuts. Higher rates are bad for risk assets, and the Fed\u2019s announcement caused<\/a> a sharp pullback in all risk assets.\u201d<\/p>\n According to Hougan, Bitcoin\u2019s price action reflected heightened sensitivity to shifting monetary conditions. He noted that Bitcoin price drop was exaggerated by leveraged positions being liquidated. \u201c$600 million of leveraged long positions were blown out in today\u2019s market, exacerbating the pullback.\u201d<\/p>\n Despite the steep correction, Hougan argued that the broader outlook remains constructive: \u201cCrypto now has internal momentum, and nothing about today\u2019s announcement interrupts the mega-trends: The pro-crypto reversal in Washington<\/a> policy, rising institutional adoption and ETF flows<\/a>, Bitcoin purchases by governments and corporations, and major tech breakthroughs in the programmable blockchain space.\u201d<\/p>\n He pointed to technical indicators as a supporting factor for his thesis: \u201cMy favorite momentum gauge is still positive: Bitcoin\u2019s 10-day exponential moving average ($102k) is still above its 20-day exponential moving average ($99k).\u201d<\/p>\n Hougan concluded his thread by maintaining that the shift in Fed expectations would not derail the longer-term bull run, stating: \u201cCrypto\u2019s in a multi-year bull market. 50bps of projected rate cuts won\u2019t change that.\u201d<\/p>\n Other market observers offered similar interpretations of the Fed\u2019s communication strategy. Warren Pies, Founder of 3Fourteen Research, commented<\/a> via X: \u201cBy upping inflation forecast, lowering UE rate, and keeping cuts in place, the Fed has actually opened the path to more than 2 cuts in 2025 as data \u2018surprises\u2019 to the dovish side.\u201d<\/p>\n Renowned macro analysts echoed this sentiment. Crypto analyst and podcaster Fejau (@fejau_inc) described the central bank\u2019s approach as a strategy designed to guide market expectations: \u201cFed forced itself into cutting this week so is using a hawkish 2025 FFR dot plot forecast to talk down long bond yields despite cutting today [\u2026] Welcome to macro psyop warfare. Smoke and mirrors baby.\u201d<\/p>\n He characterized the dot plots as a tool for psychological influence rather than a strict roadmap: \u201cIt\u2019s important to view the dot plots not as a future forecast of events, but as a psychological tool [\u2026] The Fed has bought themselves time to allow further data to come out before they actually make a move [\u2026] Can almost guarantee you 2025 will not occur as is forecasted in their dots.\u201d<\/p>\n