Bitcoin, XRP and Dogecoin saw sharp declines following the Federal Reserve's announcement of a rate cut on Dec. 18, 2024. Bitcoin dropped to $99,196, down nearly 6% within 24 hours, after reaching a new all-time high above $108,000 earlier in the week. XRP also fell 13%, and Dogecoin experienced a 12% drop, reaching its lowest point in a month at $0.348.
The Federal Reserve cut interest rates by 25 basis points, bringing the benchmark to a range of 4.25%-4.50%. Despite the cut, Fed Chairman Jerome Powell's comments signaled a slower pace for future rate reductions. He noted that the rate cuts in 2025 would likely be smaller due to higher inflation expectations and previous inflationary pressures. Powell’s remarks led to a cautious mood across financial markets, with Bitcoin and other cryptocurrencies seeing immediate price drops.
Over $690 million in crypto derivatives positions were liquidated following the Fed's announcement. Bitcoin long positions accounted for a significant portion of the total liquidations. This also caused major disruptions in the broader cryptocurrency market, with altcoins like Ethereum, Cardano and Litecoin all experiencing losses of around 10%.
Powell's statements included the Federal Reserve's expectation that the rate would decline to 3.9% by the end of 2025, which was lower than previous projections. He indicated that the slower pace of rate cuts was due to a stronger-than-expected economy and persistent inflation. The U.S. stock market also reacted negatively to Powell's comments, with both the S&P 500 and Nasdaq 100 falling. Cryptocurrency-related stocks like Coinbase and MicroStrategy also saw notable losses.
Bitcoin’s sudden reaction to macroeconomic news highlighted its sensitivity to traditional financial indicators, blurring the lines between decentralized assets and global economic trends. Although lower interest rates typically benefit risk assets like Bitcoin, the Fed's cautious stance resulted in a sell-off, with traders rapidly liquidating positions.
Despite the downturn, in an interview discussing Bitcoin’s role as an alternative asset, Powell reiterated that Bitcoin is not a competitor to the U.S. dollar but rather to gold. He also addressed the idea of the U.S. setting up a Bitcoin reserve, stating that the Federal Reserve is not allowed to own Bitcoin and does not seek a law change.
The broader cryptocurrency market reacted similarly to Bitcoin’s decline, with major assets seeing substantial drops in value. Ethereum, Solana and Dogecoin were among the hardest hit, as investor sentiment shifted in response to Powell's comments and the slower path of rate cuts projected by the Fed.
