Crypto Market Remains Unhinged by Feds 25bps Interest Rate Cuts

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As a seasoned researcher with over two decades of experience in finance and markets, I’ve witnessed countless interest rate decisions by central banks and their effects on various asset classes, including cryptocurrencies. The recent 25-basis-point cut by the Federal Reserve is no exception, as it has left the crypto market unimpressed, reflecting a complex interplay of factors at play.

As a researcher reporting events, I’m sharing that on December 18, the Federal Reserve decided to lower interest rates by 25 basis points, bringing the maximum rate to 4.50%, as anticipated. Normally, such a rate decrease would be seen as positive for cryptocurrencies. However, surprisingly, the crypto market appears to be indifferent to this move.

In the last day, cryptocurrencies have dropped by 4% due to apprehensions about the Federal Reserve’s forecast of increased inflation in 2025 and their plan for reducing interest rates by just two instances in the upcoming year.

What Do the Interest Rate Cuts Mean for Crypto 

The revised forecasts from the Federal Reserve paint a somewhat ambiguous picture for digital assets. Even though reduced interest rates indicate a more lenient monetary stance, the anticipation of rising inflation and a more gradual reduction in interest rates tends to diminish enthusiasm.

2025 was anticipated by investors as a year where the interest rate reduction pace might accelerate, potentially fueling the growth of riskier assets such as cryptocurrencies.

According to well-known influencer ‘Gum’ on platform X (previously known as Twitter), stock markets and cryptocurrencies have been soaring for more than a year due to elevated interest rates. However, he expresses concern that their growth might slow or even stop if the Federal Reserve follows through with significant rate cuts as has been suggested.

Last week’s US Consumer Price Index (CPI) data for November, showing a 2.7% year-over-year increase, briefly lifted market sentiment. Bitcoin surged to a new all-time high of $108,000 earlier this week on the back of those inflation figures aligning with forecasts. 

However, the enthusiasm appears to have faded, with macro uncertainties taking center stage.

The Federal Reserve is lowering interest rates due to the high cost of interest payments on the United States’ $36.2 trillion national debt, which is exacerbated by our $2 trillion budget deficit. This means we are paying over $1.2 trillion just in interest on this debt. It appears that they might be aiming for inflation to rise significantly as it helps reduce the burden of debt. However, this strategy can lead to severe financial instability for most other individuals and entities.

Implications for Christmas and Q1 2025

During the upcoming holiday period, the initial effect on the market is expected to be neither positive nor negative, leaning more towards a downturn, given the Federal Reserve’s cautious approach. In the short term, there might be higher market fluctuations, particularly when liquidity thins out during the Christmas season.

However, it’s important to remember that the crypto market has been surging all year long, despite high inflation and interest rates. Ultimately, it came down to regulations and institutional adoption. Bitcoin ETFs recently surpassed Gold ETF’s total AUM. 

In the coming year, it’s expected that there will be an increase in the approval of crypto ETFs. Additionally, possibilities exist for a Bitcoin reserve and regulations supportive of Trump. These factors could have a greater influence than the potential impact of reduced interest rates or waning investor interest.

Additionally, a weakened dollar due to reduced interest rates could potentially bolster Bitcoin and other digital currencies as viable alternatives. However, the anticipated inflationary pressures might dampen investor optimism.

By Q1 of 2025, it’s expected that cryptocurrency markets may be influenced by additional economic signals and central banking decisions. The ongoing trajectory of Bitcoin’s value could hinge upon the Federal Reserve’s response should inflation projections continue to increase.

For now, the market adopts a watchful stance, displaying subdued responses to an anticipated bullish impact from the interest rate reduction.

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2024-12-18 23:09