The recent interest rate cut by the US Federal Reserve has sent waves through the cryptocurrency market, particularly impacting the price of Bitcoin. On Wednesday, Bitcoin took a significant plunge, briefly dipping below the $100,000 threshold to a low of $98,760 before bouncing back to the six-figure range. Other cryptocurrencies, such as Ethereum (ETH) and Dogecoin (DOGE), also saw notable declines as market sentiment shifted.
A careful examination of the Federal Reserve’s latest actions reveals that the decision to lower borrowing costs for the third consecutive time was accompanied by a cautious outlook for further cuts, particularly looking ahead to 2025. Chair Jerome Powell emphasized the necessity for additional progress on inflation before considering more reductions in monetary policy. Market analyst Tony Sycamore from IG Australia Pty remarked that the Fed’s move was expected, given ongoing trends in US inflation and economic activity. However, this decision triggered a shedding of some of the “speculative excess” that had inflated risk assets like stocks and Bitcoin, especially following the recent US elections.
Despite the recent dip, Bitcoin remains about 50% higher since the US elections on November 5. This surge can be largely attributed to President-elect Donald Trump’s promise to deregulate the cryptocurrency sector and his proposal of a national Bitcoin stockpile, which has notably bolstered market sentiment. Paul Veradittakit, a managing partner at Pantera Capital, expressed a hopeful perspective on the future of Bitcoin, stating that “All signs point to a good floor and outlook for Bitcoin,” even as some market participants took profits after the Fed’s meeting.
The landscape began to shift post-Fed meeting, with increased demand for options that hedge against possible declines in Bitcoin prices. Sean McNulty, director of trading at Arbelos Markets, noted this uptick in hedging activity. Meanwhile, Zann Kwan, chief investment officer at Revo Digital Family Office, indicated that a brief retreat into the low $90,000s for Bitcoin might be likely.
According to crypto analyst Ali Martinez, present market dynamics reveal expectations about future conditions rather than past performances. The 25-basis-point rate cut might have been anticipated, but the Fed’s revised outlook for 2025 fell short of traders’ expectations. Instead of anticipating three cuts in 2025, the Fed’s new stance suggests only two, raising concerns about persistent inflation issues.
Adding to the uncertainty, recent inflation data has shown a core consumer price index (CPI) annualizing at 4%, with core personal consumption expenditures (PCE) nearly at 3.5%. Even the producer price index (PPI) is trending upward, indicating inflation could remain a challenge. However, Martinez highlighted a crucial moment during Powell’s press conference when he described the decision as a “closer call,” revealing disagreements among Fed officials about the cuts. This remark sent the US dollar soaring to its highest levels since 2022, which generally correlates with declines in Bitcoin’s price.
Martinez also mentioned that Bitcoin’s price had broken out of a head-and-shoulders pattern on Wednesday, which contributed to the drop below $99,000. He emphasized that for Bitcoin to shake off any bearish sentiment, it needs to surpass the critical resistance level of $105,400.
As of now, Bitcoin is trading at around $101,180, reflecting a decline of 2.2% in the past 24 hours. The dynamic interplay between interest rate decisions and Bitcoin valuations continues to unfold, reminding us how intertwined our financial landscapes are.
