In a dramatic turn of events, Bitcoin, XRP, and Dogecoin saw significant declines following Federal Reserve Chair Jerome Powell’s announcement of a slower-than-expected pace in interest rate cuts for the upcoming year. The central bank’s cautious approach to rate adjustments has sparked a rapid sell-off in the cryptocurrency market, driving investors away from high-risk assets.
Bitcoin’s Sharp Decline
Bitcoin, the largest cryptocurrency by market cap, experienced a sharp drop, currently trading at $101,430. This follows a steep fall from its new all-time high of over $108,000 set just a day earlier. The 5% plunge in Bitcoin’s value within 24 hours highlights the volatility and sensitivity of the cryptocurrency market to macroeconomic signals.
XRP and Dogecoin Hit Hard
XRP and Dogecoin, two other major cryptocurrencies, also faced substantial losses. XRP plummeted by 10%, exacerbating earlier declines, while Dogecoin fell by 9% to $0.363, its lowest point in a month. These declines reflect broader investor sentiment and the impact of Powell’s statements on market confidence.
Fed’s Rate Cut and Market Reaction
The Federal Reserve’s decision to cut interest rates by 25 basis points was anticipated, but Powell’s emphasis on a cautious approach going forward sent shockwaves through the markets. He stated, “We can therefore be more cautious as we consider further adjustments to our policy rate,” signaling that aggressive cuts are unlikely in 2025. This conservative stance has led to a pullback in both the cryptocurrency and stock markets as traders reassess their risk exposures.
Liquidation Frenzy
The cautious rate cut announcement triggered a wave of liquidations in the futures market. Over $690 million in future bets were closed in the past 24 hours, with the majority in long positions. Notably, $300 million worth of liquidations occurred within just one hour, underscoring the swift and severe reaction among traders.
Impact of Interest Rates on Crypto
Historically, cryptocurrencies like Bitcoin have benefited from low interest rates, which tend to drive more volatile price movements and attract speculative investments. The aggressive rate hikes by the Fed in 2022, aimed at controlling inflation post-COVID-19, made cryptocurrencies less attractive as investments. Now, with the Fed’s more cautious stance, the market is grappling with the implications for future crypto price dynamics.
Bitcoin’s New Narrative
Despite the recent drop, Bitcoin had a remarkable run earlier in the week, setting new all-time highs for three consecutive days. This surge came amid comments from President-elect Donald Trump and other Republicans about potentially holding Bitcoin in the U.S. strategic reserve. However, Powell quashed any immediate prospects of such a move, stating that the Federal Reserve is “not allowed to own Bitcoin” and is “not looking for a law change.”
Powell’s Perspective on Bitcoin
In a recent interview at the New York Times DealBook Summit, Powell likened Bitcoin more to gold than to a rival of the U.S. dollar, suggesting that Bitcoin’s role is more aligned with that of a speculative asset rather than a stable store of value. “Bitcoin is not a competitor for the dollar, it’s really a competitor for gold,” Powell remarked.
As the crypto market navigates the aftermath of the Fed’s cautious stance on rate cuts, investors remain on edge, closely watching for further signals that could influence the future trajectory of digital assets. The volatile reaction to Powell’s comments underscores the delicate balance between macroeconomic policies and the burgeoning world of cryptocurrencies.
